Total factor productivity

Total-factor productivty (TFP) addresses any effects in total output not caused by inputs or productivity. For example, a year with unusually good weather will tend to have higher output, because bad weather hinders agricultural output. A variable like weather does not directly relate to unit inputs or productivity, so weather is considered a total-factor productivity variable.

The equation below (in Cobb-Douglas form) represents total output (Y) as a function of total-factor producitivy (A), captial input (K), labor input (L), and the two inputs' respective shares of output.

Y = A \times K^\alpha \times L^{1-\alpha}

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Category:The economics of production

See also: Total factor productivity, Cobb-Douglas, Economics, Finance