Question: Refer to the data for Problem 12- 40. Assume the fabric costs $ 4.00 per yard in 2014 and $ 4.10 per yard in 2013.

Refer to the data for Problem 12- 40. Assume the fabric costs $ 4.00 per yard in 2014 and $ 4.10 per yard in 2013.

In Problem 12-40, Gable Company manufactures wallets from fabric. In 2013, Gable made 2,160,000 wallets using 1,600,000 yards of fabric. In 2013, Gable has capacity to make 2,448,000 wallets and incurs a cost of $ 8,568,000 for this capacity. In 2014, Gable plans to make 2,203,200 wallets, make fabric use more efficient, and reduce capacity.

Suppose that in 2014 Gable makes 2,203,200 wallets, uses 1,440,000 yards of fabric, and reduces capacity to 2,295,000 wallets at a cost of $ 7,803,000.

Required

1. Compute Gable Company’s total factor productivity (TFP) for 2014.

2. Compare TFP for 2014 with a benchmark TFP for 2013 inputs based on 2014 prices and output.

3. What additional information does TFP provide that partial productivity measures do not?

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