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 output can be produced using fewer inputs. This shift in the production function means that the same amount of output can now be produced with fewer units of labour and capital, increasing the marginal product of labour and capital. Therefore, choice A is the correct answer.

An Increase in Total Factor Productivity Shifts the Production Function