Consider the Following Production Function? Y = A×K^a×L^1?a

question 32

Multiple Choice

Consider the following production function? Y = A×K^a×L^1?a.
If a = 0.4, and over the past year output grew 4 percent, capital grew 2 percent, and labor grew 1 percent, what was the growth rate of total factor productivity (TFP) ?

• A)1.0 percent
• B)2.0 percent
• C)2.4 percent
• D)2.6 percent

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Definitions:

Fixed Costs

Costs that do not vary with the level of production or sales volume, remaining constant even as production levels change.

Break-even Point

The point at which total costs equal total revenue, resulting in no net loss or gain for the business.

Variable Cost

Costs that vary directly with the level of production or sales volume, such as raw materials and direct labor.

Fixed Costs

Costs that do not change in total despite changes in the volume of goods or services produced or sold.