Question

Chegg In year 1, the capital stock was 6, the labor input was 3, and output was 12. In year 2, the capital stock was 7, the labor input was 4, and output was 14. What happened to total factor productivity between the two years?

Answer 1

Answer:

Total factor productivity decreases between the two years.

Explanation:

Given that,

In year 1,

Capital stock = 6

Labor input = 3

Output = 12

In year 2,

Capital stock = 7

Labor input = 4

Output = 14

Total factor productivity is determined by dividing the total output of an economy by the total inputs employed.

For year 1,

Total input = Capital stock + Labor input

                  =  6 + 3

                  = 9

Percent of output explained by inputs:

= (Total inputs ÷ Total output) × 100

= (9 ÷ 12) × 100

= 75%

For year 2,

Total input = Capital stock + Labor input

                  = 7 + 4

                  = 11

Percent of output explained by inputs:

= (Total inputs ÷ Total output) × 100

= (11 ÷ 14) × 100

= 78.6%

Above calculations shows that there is an increase in the percentage of output explained by the inputs. This indicates that there is a fall in the total factor productivity between the two years.