• 10,000 Units Produced
• Sold for $10/unit
• 500 labor hours
• Labor rate: $9/hr
• Cost of raw material: $5,000
• Cost of purchased material: $25,000
Suppose we hire very efficient workers who can finish the job in 350 hours. What is now
the MFP with labor rate of $9/hr.
MFP = (10000*10)/(350*9+5000+25000) = 3.01. So, using more efficient workers, company
increased its profitability.
However we have to pay higher wages for the more efficient workers. How much extra
can we pay without reducing productivity from the original level?
Let X be the new wage. Then (10000*10)/(350*X+5000+25000) = 2.9(See page 20 on slides
on how to obtain 2.9) => Solve the equation => X =