An increase in total factor productivity causes the
A) production function to shift up, labour demand to shift right, and output supply to shift right.
B) production function to shift up, labour demand to shift left, and output supply to shift right.
C) production function to shift up, labour demand to shift right, and output supply to shift left.
D) production function to shift down, labour demand to shift left, and output supply to shift left.
E) production function to shift down, labour demand to shift right, and output supply to shift right.

Question

Quizplus · Accepted Answer

An increase in total factor productivity means that for a given level of inputs, more output can be produced. This results in an upward shift of the production function. As a result, firms would want to increase their output, leading to a rightward shift of labor demand. The increased output supply would be a result of firms being able to produce more output for the same level of inputs, thus shifting the supply curve rightward.

An Increase in Total Factor Productivity Causes the