In the production function, Total factor productivity = A = 3.5% Labor input = L = 0.75 Capital input = K = 1 – 0.75 = 0.25 Therefore, Y = 3.5% - {(0.25 × 2%) + (0.75 × 2%)} = 3.5% - (0.005 + 0.015) = 0.035 – 0.02 = 0.015 = 1.5% Answer: Contribution to growth by total factor productivity is 1.5%. Does this mean that labour contributes 75 per cent of the increased output? Explain.
In the production function, Total factor productivity = A = 3.5% Labor input = L = 0.75 Capital input = K = 1 – 0.75 = 0.25 Therefore, Y = 3.5% - {(0.25 × 2%) + (0.75 × 2%)} = 3.5% - (0.005 + 0.015) = 0.035 – 0.02 = 0.015 = 1.5% Answer: Contribution to growth by total factor productivity is 1.5%. Does this mean that labour contributes 75 per cent of the increased output? Explain.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter7: Production Economics
Section: Chapter Questions
Problem 7E
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Question
In the production function,
Total factor productivity = A = 3.5%
Labor input = L = 0.75
Capital input = K = 1 – 0.75 = 0.25
Therefore, Y = 3.5% - {(0.25 × 2%) + (0.75 × 2%)}
= 3.5% - (0.005 + 0.015)
= 0.035 – 0.02
= 0.015
= 1.5%
Answer: Contribution to growth by total factor productivity is 1.5%.
Does this mean that labour contributes 75 per cent of the increased output? Explain.
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