Total Factor Productivity Calculator

Formula

The formula to calculate Total Factor Productivity (TFP) is:

\[ \text{TFP} = \frac{\text{Output}}{(\text{Labor Input})^{0.5} \times (\text{Capital Input})^{0.5}} \]

Where:

\(\text{Output}\) is the total output produced by the firm (units)
\(\text{Labor Input}\) is the total hours of labor used in production (hours)
\(\text{Capital Input}\) is the total units of capital used in production (units)

What is Total Factor Productivity?

Total Factor Productivity (TFP) is a measure of the efficiency and effectiveness with which both labor and capital inputs are used in the production process. It is considered an indicator of technological progress or innovation within an economy or firm. A higher TFP value suggests that the firm or economy is producing more output per unit of input, which is a sign of greater efficiency.

Example Calculation

Let's consider an example:

Total Output: 1000 units
Labor Input: 500 hours
Capital Input: 200 units

Using the formula to calculate Total Factor Productivity:

\[ \text{TFP} = \frac{1000}{(500)^{0.5} \times (200)^{0.5}} = 3.16 \]

This means that the Total Factor Productivity is 3.16.