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

question 59

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.

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Definitions:

Abstract Operations

A stage in Piaget's theory of cognitive development where individuals can think abstractly and reason logically.

Formal Operational Thought

A stage of cognitive development, as defined by Piaget, in which individuals can think abstractly and logically.

Concrete Operational Thought

A stage in Piaget's theory of cognitive development, typically occurring between ages 7 and 12, where children gain the ability to think logically about concrete events.

Egocentric Reasoning

Thinking characterized by a limited ability to see beyond one's own perspectives and consider the viewpoints of others.