Answer:
Total factor productivity decreases between the two years.
Explanation:
Given that,
In year 1,
Capital stock = 6
Labor input = 3
Output = 12
In year 2,
Capital stock = 7
Labor input = 4
Output = 14
Total factor productivity is determined by dividing the total output of an economy by the total inputs employed.
For year 1,
Total input = Capital stock + Labor input
= 6 + 3
= 9
Percent of output explained by inputs:
= (Total inputs ÷ Total output) × 100
= (9 ÷ 12) × 100
= 75%
For year 2,
Total input = Capital stock + Labor input
= 7 + 4
= 11
Percent of output explained by inputs:
= (Total inputs ÷ Total output) × 100
= (11 ÷ 14) × 100
= 78.6%
Above calculations shows that there is an increase in the percentage of output explained by the inputs. This indicates that there is a fall in the total factor productivity between the two years.
