Total factor productivity

Examples of Total factor productivity in the following topics:

• Total Factor Productivity

  • Increases in total factor productivity reflect a more efficient use of inputs, and total factor productivity is often taken as a measure of long-term technological change or dynamism brought about by such factors as technical innovation.
  • Total factor productivity cannot be measured directly.
  • In the Cobb-Douglas production function, total factor productivity is captured by the variable A:
  • Total factor productivity can be used to measure competitiveness.
  • Total output is not only a function of labor and capital, but also of total factor productivity, a measure of efficiency.

• Measuring Productivity

  • While different economic perspectives often identify different factors of production (i.e. inputs in the system), it is useful to identify the following:
  • This will include the derivation of a marginal product for each factor (see ), or essentially the extra output that can be created for each additional unit of input.
  • In this circumstance 'Q' is the quantity of output while each 'x' is a factor input.
  • In the equation, 'Y' is total production while 'L' is labor, 'K' is capital, 'A' is total factor productivity and the alpha and beta are the elasticity of the two inputs.
  • Leontief Production Function: The Leontief Production Function assumes a technologically pre-determined set of proportions for the factors of production (i.e. no ability to substitute between factors.

• The Law of Diminishing Returns

  • In economics, diminishing returns (also called diminishing marginal returns) is the decrease in the marginal output of a production process as the amount of a single factor of production is increased, while the amounts of all other factors of production stay constant.
  • The law of diminishing returns does not imply that adding more of a factor will decrease the total production, a condition known as negative returns, though in fact this is common.
  • The average total cost of production is the total cost of producing all output divided by the number of units produced.
  • Average total cost is interpreted as the the cost of a typical unit of production.
  • As long as the marginal cost of production is lower than the average total cost of production, the average cost is decreasing.

• The Importance of Productivity

  • Productivity is the ratio of total output to one unit of total input; high productivity means larger capital gains.
  • Productivity is a measure of the efficiency of production.
  • Productivity is measured as a total output per one unit of a total input.
  • Those coffee beans are vulnerable to plant diseases and other factors that could make them scarce.
  • Factors describing the production process are the components of profitability, which are revenues and expenses.

• Average and Marginal Cost

  • Marginal cost is the change in total cost when another unit is produced; average cost is the total cost divided by the number of goods produced.
  • Economic factors that impact the marginal cost include information asymmetries, positive and negative externalities, transaction costs, and price discrimination.
  • The total cost for making two pairs of shoes is $40.
  • Average cost can be influenced by the time period for production (increasing production may be expensive or impossible in the short run).
  • Average costs are the driving factor of supply and demand within a market.

• National Income

  • A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted national income (NNI* adjusted for natural resource depletion).
  • Arriving at a figure for the total production of goods and services in a large region like a country entails a large amount of data-collection and calculation.
  • At factor cost = GDP at market price - depreciation + NFIA (net factor income from abroad) - net indirect taxes
  • The income approach equates the total output of a nation to the total factor income received by residents or citizens of the nation:
  • NDP at factor cost = compensation of employees + net interest + rental and royalty income + profit of incorporated and unincorporated NDP at factor cost

• Productivity

  • A valid measurement of total productivity necessitates considering all production inputs, and the surplus value calculation is the only calculation to conform to that requirement .
  • This model demonstration reveals the fundamental character of total productivity.
  • Total productivity is that part of real income change which is caused by the shift of the production function.
  • Another productivity measure is known as multi-factor productivity (MFP).
  • Labor productivity is equal to the ratio between a volume measure of output (gross domestic product or gross value added) and a measure of input use (the total number of hours worked or total employment).

• Abiotic Factors Influencing Plant Growth

  • The two most important abiotic factors affecting plant primary productivity in an ecosystem are temperature and moisture.
  • Temperature and moisture are important influences on plant production (primary productivity) and the amount of organic matter available as food (net primary productivity).
  • It is calculated as the total amount of carbon fixed per year minus the amount that is oxidized during cellular respiration.
  • In terrestrial environments, net primary productivity is estimated by measuring the aboveground biomass per unit area, which is the total mass of living plants, excluding roots.
  • Together, these factors lead to the maximal amount of carbon dioxide (CO2) moving into the plant, resulting in high biomass production.

• Marginal Product of Labor (Physical)

  • When production is discrete, we can define the marginal product of labor as ΔY/ΔL where Y is output.
  • When production is continuous, the MPL is the first derivative of the production function in terms of L.
  • gives another example of marginal product of labor.
  • The second column shows total production with different quantities of labor, while the third column shows the increase (or decrease) as labor is added to the production process.
  • The key factor is that the variable input is being changed while all other factors of production are being held constant.

• Aggregate Production

  • The production function relates the physical outputs of production to the physical inputs or factors of production.
  • To understand how the aggregate production impacts long-run growth, it is important to understand the stages of production :
  • The average physical product is at its maximum.
  • The production function of a firm or economy can be graphed using the total, average, and marginal products.
  • The aggregate production is determined based on the stages of production and the results of the graph.