At the end of 2018, Cardigan Corporation implemented a new labor process and redesigned its product with the expectation that input usage efficiency would increase. Now, at the end of 2019, the president of the company wants an assessment of the changes on the company's productivity. The data needed for the assessment are as follows: $\begin{array} { l }&2018&2019\
\text { Output }&20,000&24,000\
\text { Output prices }&\$10&\$10\\
\text { Change in profits }&&\$22,200\\
\text { Profit-linked measurements: }\
\text { Materials } && \$, 200 \
\text { Labor } && 10,500 \
\text { Power } && (1,500)
\end{array}$
What is the price-recovery component?
A)($6,000)
B)$16,200
C)$6,000
D)$22,200

Question

At the end of 2018, Cardigan Corporation implemented a new labor process and redesigned its product with the expectation that input usage efficiency would increase. Now, at the end of 2019, the president of the company wants an assessment of the changes on the company's productivity. The data needed for the assessment are as follows: $\begin{array} { l  }&2018&2019\
 \text { Output }&20,000&24,000\
\text { Output prices }&\$10&\$10\\
\text { Change in profits }&&\$22,200\\
\text { Profit-linked measurements: }\
\text { Materials } && \$, 200 \
\text { Labor } && 10,500 \
\text { Power } && (1,500)
\end{array}$
 What is the price-recovery component?
A)($6,000)
B)$16,200
C)$6,000
D)$22,200

Quizplus · Accepted Answer

The price-recovery component is the portion of the change in profits that can be attributed to changes in the prices of outputs and inputs. Since the output prices remained constant at $10 and there's no detailed information on input prices changing, the entire change in profits ($22,200) is attributed to productivity improvements, not price recovery. Therefore, the price-recovery component is $0, which is not explicitly listed among the options. However, understanding that the question might be asking about the total change in profits due to the lack of price changes, the closest answer reflecting the change in profits without a direct price recovery effect is D) $22,200, assuming the question implies assessing the total impact on profits under the given conditions.

At the End of 2018, Cardigan Corporation Implemented a New