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Questions and Answers
Increases in productivity result in a smaller difference between total revenues and total costs.
False
Labor productivity can decrease over time.
False
The production function is expressed as Y = f(K, L).
True
In the long-run, capital is a variable input.
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As capital per worker increases, output per worker decreases.
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Total factor productivity measures are not affected by technological progress.
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Multifactor productivity measures the effect of technological progress on labor productivity.
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In the short-run, output can be increased by increasing capital.
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Labor productivity is measured by dividing output produced by the number of employees.
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Multifactor productivity measures output per unit of labor only.
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Increases in multifactor productivity result in increases in output, which is a direct contribution to a country's economic growth.
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Measuring labor productivity isolates the contribution of capital inputs in the process.
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Capital productivity is a measure of output per unit of labor.
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Technical efficiency gains involve a movement towards eliminating best practices.
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The Tornqvist Index is used to measure labor productivity.
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Increases in multifactor productivity lead to decreases in real incomes.
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Productivity is directly observable and can be measured directly.
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Total Factor Productivity (TFP) is a measure of productivity that focuses on a single factor input.
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Labor Productivity is a measure of productivity that focuses on many or all factor inputs.
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Productivity can be estimated at the individual level.
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One of the objectives of measuring productivity growth is to trace technical change.
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Full efficiency in an engineering sense means that a production process has achieved a certain percentage of the maximum amount of output that is physically achievable.
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Study Notes
Productivity and Its Impact
- Increased productivity results in higher profits for the affected industry, ceteris paribus.
- Labor productivity can increase over time due to two basic factors: increased use of capital and technological progress.
Factors Affecting Productivity
- Increased use of capital (e.g., machines) in production increases the amount of capital per worker.
- Technological progress includes improvements in labor or capital.
Production Function
- The relationship between inputs and outputs can be expressed as: 𝑌 = 𝑓(𝐾, 𝐿)
- In per capita terms, the production function can be simplified as: 𝑦 = 𝑓(𝑘), where 𝑦 is output per worker and 𝑘 is the capital-labor ratio.
- Labor productivity is a function of the capital-labor ratio.
Short-run vs Long-run Productivity
- In the short-run, capital is fixed, and output can be increased by increasing labor.
- However, the law of diminishing marginal productivity of labor applies, and output cannot be increased indefinitely.
Measures of Productivity
- Single Factor Productivity:
- Labor Productivity: output per unit of labor, calculated by dividing output by labor input (number of employees or labor hours).
- Capital Productivity: output per unit of capital input.
- Multifactor Productivity (MFP) or Total Factor Productivity (TFP): output per unit of combined inputs, measuring the overall production efficiency of an industry or economy.
Importance of Multifactor Productivity
- Increases in multifactor productivity have crucial benefits for the economy and society.
- Increases in output contribute directly to economic growth.
- Increases in real incomes contribute to a rising living standard in the country.
Definition and Measurement of Productivity
- Productivity is defined as a ratio of a volume measure of output to a volume measure of input use (Output/Input).
- Productivity is not directly observable and is typically measured residually.
- Productivity can be estimated at various levels: industry, economic sector, or the economy.
- Objectives of productivity measurement include tracing technical change and achieving full efficiency in an engineering sense.
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Description
This quiz covers the concept of productivity in industries and firms, its effects on profits, prices, and labor compensation, and how it can increase over time.
