22-16 It will have been found in the preceding problem that, when efficiency increased from 80 to 100 percent, output increased from 200,000 to 250,000 units per year. Let us now suppose that the firm has no need for any of this additional output. Consequently, over a period of time, it reduces its direct labor work force, the number of supervisors, and the amount of equipment on hand. The result is that the annual expense of fringe benefits, supervision, and depreciation drops from $300,000 to $260,000. What will these expenses now be in terms of an amount per unit of output?
Next, suppose that the efficiency goes on to increase to 120 percent. But again, the firm wants to maintain the level of output at 200,000 units, and it does so by making further reductions in the work force, supervisory staff, and available equipment with the result that the corresponding expenses decrease from $260,000 to $230,000. What will these expenses now be in terms of an amount per unit of output?