An increase in total factor productivity shifts the production function

Question

Quizplus · Accepted Answer

An increase in total factor productivity means that with the same amount of inputs (capital and labor), more output can be produced. Therefore, the production function shifts upwards, indicating that more output can be produced for the same amount of inputs. This also increases the marginal product of labor, as with the same amount of labor, more output can now be produced.

An Increase in Total Factor Productivity Shifts the Production Function