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Eduncle posted an MCQ
October 19, 2019 • 16:41 pm 0 points
  • UGC NET
  • Economics

In an economy with a linear homogeneous Cobb-Douglas production function, the share of capital and labour in total output are, respectively, 40% and 60%. The ca

In an economy with a linear homogeneous Cobb-Douglas production function, the share of capital and labour in total output are, respectively, 40% and 60%. The capital stock and labour force are growing, respectively, at 8% and 3% per annum. If the rate of growth of output is recorded as 7% per annum, then the rate of growth of Total Factor Productivity will be

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    Eduncle Best Answer

    Growth in Total Factor Productivity = Growth in Output - Contribution of Capital - Contribution of Labour 
     
    = 0.07 – 0.4(0.08) – 0.6(0.03)
    = 0.07 – 0.032 – 0.018
    = 0.02
    Hence, the growth in total factor productivity growth is 2%.

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