Holstein Company Produces Pants That Use Two Inputs-Materials and Labor

Essay

Holstein Company produces pants that use two inputs-materials and labor. During the past quarter, 1,000 units were produced, requiring 2,000 pounds of material and 1,000 hours of labor. An engineering efficiency study commissioned by the local university revealed that Holstein Company can produce the same output of 1,000 units using either of the following two combinations of inputs:
Materials Labor
Combination A 1,750 875
Combination B 2,000 750
The cost of materials is $2.50 per pound; the cost of labor is $5 per hour.
Required:
a. Compute the productivity ratio for each input of Combination A.
b. Does this represent a productivity improvement over the current use of inputs?
c. What is the total dollar value of the combination A improvement? Classify this as a technical or input trade-off efficiency improvement.