A U. S. manufacturing company operating a subsidiary in an LDC (less-developed country) shows the following results: U. S. LDC
Sales (units) 100,000 20,000
Labor (hours) 20,000 15,000
Raw materials (currency) $20,000 FC 20,000
Capital equipment (hours) 60,000 5,000
a. Calculate partial labor and capital productivity figures for the parent and subsidiary. Do the results seem confusing?
b. Compute the multifactor productivity figures for labor and capital together. Do the results make more sense?
c. Calculate raw material productivity figures (units/$ where $1=FC 10). Explain why these figures might be greater in the subsidiary.

a. Labor Productivity:

Country     Sales (Units)    Labour (hours)     Productivity (Sales/Labour hours)

U.S              100,000              20,000              5 units / hours

LDC             20,000                15,000               1.33 units/ hours

Capital Productivity

Country     Sales (Units)    Capital (hours)     Productivity (Sales/Capital hours)

U.S              100,000               60,000                1.67 units / hour

LDC             20,000                 5,000                  4 units / hours

Conclusion: Yes, the result seems confusing. The labour productivity in U.S. is higher than LDC while the capital productivity in U.S. is lower than LDC which is contradictory.

b. Multi-factor productivity for Labor and Capital

Country      Sales                  Input                  Productivity

                  (Units)         (Labor + Capital)       (units/hours)

U.S.          100,000                80,000                1.25 units/hour

                                       (20,000 + 60,000)

LDC           20,000                 20,000                1 units/hour

                                        (15,000 + 5,000)

Conclusion: Yes it make sense as multi-factor productivity is better than partial productivity. Labor and capital are subtitles and that gives better presentation of the productivity.

c. Raw material productivity

Country      Sales           Raw material            Productivity

                  (Units)            (Currency)              (units/hours)

U.S.            100,000         $20,000                  5 units per dollar

LDC            20,000          = $2,000                 10 units per dollar        

Conclusion: The figures are greater in subsidiary because the price paid for raw material is much slower than the parent country.

Note: $1 = FC 10

$20,000 = FC 10

FC = $20,000 / 10 = $2,000

in terms of experimental research, mcdonald’s charging different prices in the two cities relates to

1. c

2. b

3. a

4. c

5. a

6. b

7. c

8. c

9.b

10. d

just took it 100%