Cobb-Douglas Production Function
A cobb-Douglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs particularly physical capital and labor, and the amount of output that can be produced by those inputs. Mathematically, it is expressed as;
L and B are two exponential terms.
Properties of cobb-Douglas production function:
1. Factor Intensity:
The cobb-Douglas production function determines the technology used in the production as;
2. Efficiency of Production:
The value of efficiency parameter A determines the degree of efficiency. A Higher of ‘A’ implies a higher degree of efficiency and vice-versa.
3. Returns to Scale:
The sum of the exponents (powers) of a factor in the cobb-Douglas production function, that is
α +B measures return to scale.
α + B >1, Increasing returns to scale
α +B >1, Decreasing returns to scale
α +B = 1, Constant returns to scale
4. Average Productivity of Inputs:
The partial derivates of the cobb-Douglas production function measure the marginal product of the input. A marginal product is a change in output due to a change in input.
6. Marginal Rate of Technical Substitution Between Inputs: