Solved: Carsen Company produces handcrafted pottery

that uses two inputs materials

Carsen Company produces handcrafted pottery that uses two inputs materials

Carsen Company produces handcrafted pottery that uses two inputs: materials and labor.
During the past quarter, 24,000 units were produced, requiring 96,000 pounds of materials and
48,000 hours of labor. An engineering efficiency study commissioned by the local university
revealed that Carsen can produce the same 24,000 units of output using either of the following
two combinations of inputs:

The cost of materials is $8 per pound; the cost of labor is $12 per hour.

Required:

1. Compute the output-input ratio for each input of Combination F1. Does this represent a
productivity improvement over the current use of inputs? What is the total dollar value of the
improvement? Classify this as a technical or an allocative efficiency improvement.

2. Compute the output-input ratio for each input of Combination F2. Does this represent a
productivity improvement over the current use of inputs? Now, compare these ratios to those of
Combination F1. What has happened?

3. Compute the cost of producing 24,000 units of output using Combination F1. Compare this
cost to the cost using Combination F2. Does moving from Combination F1 to Combination F2
represent a productivity improvement? Explain.

Carsen Company produces handcrafted pottery that uses two inputs materials

ANSWER
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materials/

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