An increase in total factor productivity shifts the production function
A) upward and increases the marginal product of labour.
B) upward and decreases the marginal product of labour.
C) downward and increases the marginal product of labour.
D) downward and decreases the marginal product of labour.
E) upward and increases the marginal product of capital.

Question

Quizplus · Accepted Answer

An increase in total factor productivity means that the same amount of inputs (e.g. labour and capital) can produce more output. This shift in the production function will be upward, meaning that for any given level of input, output will be higher. This will in turn increase the marginal product of labour, which is the additional output produced by one additional unit of labour, holding all other inputs constant.

An Increase in Total Factor Productivity Shifts the Production Function