Consider the production function Q = Af(K, L). Which of the following statements is (are) TRUE?
I. An increase in total factor productivity growth is represented by an increase in K or L.
II. An increase in total factor productivity growth means that the same amount of output can be produced using fewer inputs.
III. If A increases by 10%, the amount of output produced will increase by 10%, holding the quantity of inputs fixed.
A) II
B) I, II, and III
C) II and III
D) I

Question

Quizplus · Accepted Answer

II is true because an increase in total factor productivity (represented by A) means that the production process becomes more efficient, allowing the same output to be produced with fewer inputs. III is true because if A (total factor productivity) increases by 10%, and the quantities of K (capital) and L (labor) remain constant, the output Q will increase by 10%, reflecting the direct impact of improved productivity on output. I is incorrect because an increase in K or L represents an increase in the quantity of inputs, not an increase in total factor productivity growth, which is represented by an increase in A.

Consider the Production Function Q = Af(K, L)