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posted by  Bollie on 7/11/2009 12:03:19 AM  |  status: Live  |  Earned Karma: 56

LDC

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Question Details:
A U.S manufacturing company operating in an LDC(less development company) shows the following results

                                                               US                                LDC
Sales (units)                                        100,000                           20,000
Labor (hours)                                        20,000                           15,000
Raw Material (currency)                        $20,000                        FC 20,000
Capital Equipment (hours)                     60,000                                  5,000

calculate partial labor and capital productivity figures for the parent and subsidiary. Do the result seem misleading?

Compute the multifactor productivity figures for labor and capital together.Are the results better?

Calculate new material productivity figures (units$ where $1=FC 10). Explain why these figures might be greater in the subsidiary.
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Sage
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posted by Domokun on 7/11/2009 12:19:17 PM  |  status: Live
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Response Details:
Partial producitivity figures:
Parent
Partial labor productivity = 100000 / 20000 = 5
Capital productivity = 100000 / 60000 = 1.667
Subsidiary
Partial labor productivity = 20000 / 15000 = 1.333
Capital productivity = 20000 / 5000 = 4
These results seem misleading because the subsidiary in the LDC uses much more labor relative to capital in order to produce a corresponding amount of output. This is due to the cheaper cost of labor in the LDC.

Multifactor productivity:
Parent
100000 / (20000 + 60000) = 1.25
Subsidiary
20000 / (15000 + 5000) = 1
These results are more reasonable because it takes into account both inputs involved in producing the outputs, especially given the comparative advantage in the LDC of cheaper labor relative to capital equipment.

Material productivity figures (in USD):
Parent
100000 / 20000 = 5
Subsidiary
20000 / (20000 / 10) = 10
The material productivity figure is higher in the subsidiary because the raw materials are relatively cheaper in the LDC given the favorable foreign exchange rate. This is typically the case when LDCs export raw materials to more developed countries for processing.
Tags: Productivity
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