Question

State the Cobb-Douglas Production Function.

Answer 1

The Cobb – Douglas Production Function was developed by Charles W. Cobb and Paul H. Douglas, based on their empirical study of the American manufacturing industry. It is a linear homogeneous production function which implies that the factors of production can be substituted for one another up to a certain extent only.

The Cobb – Douglas production function can be expressed as follows.
Q = AL²K²
Where, Q = output; A = positive constant;
K = capital;
L = Labor α and β are positive fractions showing, the elasticity coefficients of outputs for the inputs labor and capital, respectively.
P = (1 – a) since a + p = 1. denoting constant returns to scale.
Factor intensity can be measured by the ratio β / α.

The sum of α + β shows the returns to scale.

1. (α + β) = 1, constant returns to scale.
2. (α + β) < 1, diminishing returns to scale.
3. (α + β) >1, increasing returns to scale

• The production function explains that with the proportionate increase in the factors, the output also increases in the same proportion.
• Cobb – Douglas production function implies constant returns to scale.
  Cobb – Douglas Production Function is a specific standard equation applied to describe how much output can be made with capital and labour inputs.