An Increase in Total Factor Productivity Shifts the Production Function

question 42

Multiple Choice

An increase in total factor productivity shifts the production function

• A)upward and increases the marginal product of labour.
• B)downward and decreases the marginal product of labour.
• C)upward and decreases the marginal product of labour.
• D)upward and increases the marginal product of capital.
• E)downward and increases the marginal product of labour.

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Definitions:

Short Run

A time period in economics where at least one factor of production is fixed, limiting the ability of businesses to adjust to changing market conditions.

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, leading to market balance.

Demand Curve

is a graph showing the relationship between the price of a good or service and the quantity demanded by consumers, typically downsloping to indicate that lower prices increase demand.

Competitive Firm

A company that operates in a market with many competitors, facing a highly elastic demand curve for its product because many substitutes are available.