An Emirates Company has two manufacturing plants, one in UAE, and one in another
ID: 356111 • Letter: A
Question
An Emirates Company has two manufacturing plants, one in UAE, and one in another country. Both produce the same item, each for sale in their perspective countries. However, their productivity figures are quite different. The analyst thinks this is because the UAE plant uses more automated equipment for processing while the other uses a higher percentage of labor. 1. Explain how that factor can cause productivity figures to be misleading. 2. Is there another way to compare the two plants that would be more meaningful? An Emirates Company has two manufacturing plants, one in UAE, and one in another country. Both produce the same item, each for sale in their perspective countries. However, their productivity figures are quite different. The analyst thinks this is because the UAE plant uses more automated equipment for processing while the other uses a higher percentage of labor. 1. Explain how that factor can cause productivity figures to be misleading. 2. Is there another way to compare the two plants that would be more meaningful? 1. Explain how that factor can cause productivity figures to be misleading. 2. Is there another way to compare the two plants that would be more meaningful?Explanation / Answer
1. The fact that the plant in UAE uses more automated equipment and the one in another country uses a higher percentage of labor can cause productivity figures to be misleading because automated equipment may also require other inputs like electricity, annual maintenance contract or use of consultants, etc which must be included in the final cost per product. This does not happen when we just look at productivity in terms of the number of items produced.
2. A better way to compare the two plants would be to find the cost per product or the revenue of the plants after adjusting for purchasing power parity.