Holstein Company Produces Pants That Use Two Inputs-Materials and Labor $\begin{array}{lll}& \text {Materials }& \text { labor}\\\text { Combination } A & 1,750 & 875 \\\text { Combination } B & 2,000 & 750\end{array}$

question 148

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:
$\begin{array}{lll}& \text {Materials }& \text { labor}\\\text { Combination } A & 1,750 & 875 \\\text { Combination } B & 2,000 & 750\end{array}$
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.

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Definitions:

Series of Payments

Multiple payments made over time, often at fixed intervals.

Combined Equivalent Value

Refers to a singular value that encapsulates the total worth or effect of multiple financial elements combined.

Due Today

An obligation, often financial, that is required to be paid or settled on the current day.

Payment Streams

A series of payments made over a period of time, often in the context of loans, annuities, or investments.