Enter the total output, labor input, and capital input into the calculator to determine the Total Factor Productivity (TFP). TFP measures the efficiency of all inputs to a production process.

Total Factor Productivity Formula

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

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

Variables:

  • Output is the total output produced by the firm (units).
  • Labor Input is the total hours of labor used in production (hours).
  • Capital Input is the total units of capital used in production (units).

To calculate TFP, divide the total output by the geometric mean of labor input and capital input.

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.

How to Calculate Total Factor Productivity?

The following steps outline how to calculate the Total Factor Productivity (TFP).

  1. First, determine the total output produced by the firm (Output).
  2. Next, determine the total hours of labor used in production (Labor Input).
  3. Next, determine the total units of capital used in production (Capital Input).
  4. Use the formula to calculate TFP = Output / (Labor Input^0.5 * Capital Input^0.5).
  5. Finally, calculate the Total Factor Productivity (TFP).
  6. After inserting the variables and calculating the result, check your answer with the calculator above.

Example Problem :

Use the following variables as an example problem to test your knowledge.

Total Output = 1000 units

Labor Input = 400 hours

Capital Input = 250 units