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A company that makes lobster traps recently purchased some new equipment that reduces the labor content of the jobs needed to produce the traps. Prior to buying the new equipment, the company used six workers, who produced an average of 85 traps per hour. Workers receive $20 per hour, and machine cost was $45 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by $10 per hour while output increased by four traps per hour.
a. Compute labor productivity under each system. Use traps per worker per hour as the measure of labor productivity.
b. Compute the multifactor productivity under each system. Use traps per dollar cost (labor plus equipment) as the measure.
c. Comment on the changes in productivity according to the two measures, and on which one you believe is the more pertinent to this situation.
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