Question

A U.S. company has two manufacturing plants, one in the United States and one in another country. Both produce the same item, each for sale in their respective countries. However, their productivity figures are quite different. The analyst thinks this is because the U.S. plant uses more automated equipment for processing while the other plant uses a higher percentage of labor. Explain how that factor can cause productivity figures to be misleading. Is there another way to compare the two plants that would be more meaningful?

Answer 1

We cannot compare the productivity of two plants with automated equipment and manual labour because both are completely different where automated machinery can produce double the number of prodcuts than manual labour. The best way to compare the prodcutivity of the two plants is comparing the investments done in each plant with their respective sales data which will give us full details on it's profit or loss. This tells us how efficient each plant and how much revenue each plant is capable of generating. This would be a more meaningful approach to compare both the plants.