Thanks to visit codestin.com
Credit goes to www.scribd.com

Scribd
Upload
334 views10 pages

Cobb Douglas Production Function

The Cobb-Douglas production function models the relationship between inputs like capital and labor and the output of production. It assumes a constant return to scale, meaning that a doubling of all inputs will result in a doubling of output. The function expresses output as a product of inputs raised to elasticity coefficients between 0 and 1, with their sum indicating returns to scale. However, it oversimplifies by only including two inputs and assuming constant returns, when in reality inputs may be scarce or indivisible and returns can vary.

Uploaded by

shivansh pandey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
334 views10 pages

Cobb Douglas Production Function

The Cobb-Douglas production function models the relationship between inputs like capital and labor and the output of production. It assumes a constant return to scale, meaning that a doubling of all inputs will result in a doubling of output. The function expresses output as a product of inputs raised to elasticity coefficients between 0 and 1, with their sum indicating returns to scale. However, it oversimplifies by only including two inputs and assuming constant returns, when in reality inputs may be scarce or indivisible and returns can vary.

Uploaded by

shivansh pandey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 10

Cobb Douglas Production Function

Unit III
• The Cobb-Douglas Production Function was developed by Charles W.
Cobb and Paul H. Douglas, based on their empirical study of
American manufacturing industry. It is a linear homogeneous
production function.

• A Cobb-Douglas production function is a specific standard equation


that is applied to describe how much output two a production process
make, with capital and labor being the typical inputs described.
Linear homogeneous production function

• The Linear Homogeneous Production Function implies that


with the proportionate change in all the factors of production,
the output also change in same proportion. Such as, if the
input factors are doubles the output also gets doubled. This
also known as constant return to a scale.
The Cobb-Douglas production function can be expressed as follows.

Q = ALα Kß
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.

ß= (1- α) since α + ß = 1. denoting constant returns to scale.

The sum of a + ß shows the returns to scale.

.
i. (α + ß) =1, constant returns to scale.

ii. (α + ß) <1, diminishing returns to scale.

iii. (α + ß) >1, increasing returns to scale.


Limitations
• The C-D production function considers only two inputs, labour and
capital, and neglects some important inputs, like raw materials, which
are used in production. It is, therefore, not possible to generalize this
function to more than two inputs.
• In the C-D production function, the problem of measurement of capital
arises because it takes only the quantity of capital available for
production. But the full use of the available capital can be made only
in periods of full employment. This is unrealistic because no economy
is always fully employed.
• The C-D production function is criticized because it shows constant
returns to scale. But constant returns to scale are not an actuality, for
either increasing or decreasing returns to scale are applicable to
production.

• It is not possible to change all inputs to bring a proportionate change


in the outputs of all the industries. Some inputs are scarce and cannot
be increased in the same proportion as abundant inputs. On the other
hand, inputs like machines, entrepreneurship, etc. are indivisible. As
output increases due to the use of indivisible factors to their maximum
capacity, per unit cost falls.

You might also like