Cobb douglas constant returns to scale9/15/2023 Necessary cookies are absolutely essential for the website to function properly. In this article, we explained the major properties of the Cobb-Douglas production function. The Cobb-Douglas Production Function is one of the most applied production functions around economics research. This empirical production function was published in the American Economic Review in 1928 A.D. The cobb-Douglas production function is based on the empirical studies of several manufacturing industries of the USA made by C.W. Or Log Q= Long A + α Log K + β Log L Conclusion Linear Form of Cobb-Douglas Production FunctionĬ-D Production function can be made linear using logarithm and the level of output can be estimated based on regression analysis.Īpplying log on both sides of equation (i) we get If α+β1, there is the use of the capital-intensive technique of production (capital is more vital in the manufacturing process), andĩ.If α+β>1, it exhibits increasing returns to scale (IRS).If α+β=1, it exhibits constant returns to scale (CRS).The sum of the powers/exponents of factors in Cobb-Douglas production function, that is α+β measures the returns to scale. The C-D production function can be used in the calculation of the nature of returns to scale. The C-D Production Function Can be Used to Measure the Returns to Scale Here are some of the essential/major properties/features of the C-D production function.ġ. Major Properties/Features of the Cobb-Douglas Production Function From further research and analysis, it was generalized and found that the sum of exponents (α+β) could be equal to one, more than one, and less than one. if K = 0, Q = 0 and if L = 0, Q = 0).Īnother important thing to note is that originally it was found that the sum of exponents of the C-D production function was equal to one. It means, if the amount of one of the factors of production is zero, no output can be produced. It is confirmed by the C-D production function that it is a multiplicative production function which implies that both the factors of production are essential to produce goods and services. These values are constants and are determined by the available state of technology. K = Capital (machine, equipment, and buildings),Ī = It is an index of technology or efficiency parameter also called total factor productivity and is positive, α and β are positive parameters of the production function which measures output elasticities of capital and labor, respectively. Q = The level of output produced in a year,
0 Comments
Leave a Reply.AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |