A Business Encyclopedia

Cobb-Douglas Production Function

Definition: The Cobb-Douglas Production Function, given by Charles W. Cobb and Paul H. Douglas 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.

With the proportionate increase in the input factors, the output also increases in the same proportion. Thus, there are constant returns to a scale. In Cobb-Douglas production function, only two input factors, labor, and capital are taken into the consideration, and the elasticity of substitution is equal to one. It is also assumed that, if any, of the inputs, is zero, the output is also zero.

Likewise, in the linear homogeneous production function, the expansion path generated by the cobb-Douglas function is also a straight line passing through the origin. The CD function can be expressed as follows:

Q = ALαKβ

Where, Q = output
A = positive constant
K = capital employed
L = Labor employed
α and β = positive fractions shows the elasticity coefficients of outputs for inputs labor and capital, respectively.
Β = 1-α

This algebraic form of Cobb-Douglas function can be changed in a log linear form, with the help of regression analysis:

Log Q = log A + α log L + β log K

The homogeneity of the Cobb-Douglas production function can be checked by adding the values of α and β. If the sum of these parameters is equal to one, then it shows that the production function is linearly homogeneous, and there are constant returns to a scale. If the sum of these parameters is less or more than one, then there is a decreasing and increasing returns to a scale respectively.

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

meaning divestmentsfa automationexplain ansoff matrixpoison pill financeaptitude test gateethical theory deontologydistribution channel conflict managementexamples of rural marketingdefine positsitemized rating scaledefinition of induction training14 principles of management by henri fayolprocess theories of motivationdefinition of sole proprietordefinition npsinbound and outbound meaningcarriage inward meaningdefinition laissez-fairedefine monopoliesdefinition psychologicallymeaning of liquidity ratiosppt on transactional analysischronic unemployment meaningherzberg theorieslikert scale descriptorsjohari quadrantmnc meanmax weber bureaucratic modelfiedler contingency theory of leadershipduality examples linear programminginitial outlay formulataylors scientific management theorytransactional analysis in organisational behaviourdefine outboundclassical pavlovian conditioningtotal utility and marginal utility graphexpectancy valence theorydefine oligopolydefinition of outsourcing in economicsomo commercialhenri fayol 14 principles of managementuntapped market definitionnational pension scheme nps indiahindi meaning of spanchannel management meaningwhat is demand pull and cost push inflationkisan vikas patra taxwhat does vestibule meanjohn adams equity theorytotal utility meaningapplication of classical conditioning in marketingoperant learning definitionunitary elastic demand curvemeaning of divestmentwhat is the definition of primaldefine jitwhat affects price elasticity of demanddefine itemizemeaning of operant conditioningdefinition of decentralisationprimary deficit definitionwhat are the four quadrants of the johari windowitc product mixdifference between cardinal utility approach and ordinal utility approachsnowballing research methoddefine vestibuleretrenchment strategy in strategic managementdefine resonancesarbitrage trading forexmonopoly defforex meanskinds of price elasticity of demanddefinition of neo classicismthe definition of delegated powerswhat is seed financingwhats a vestibuleseven seas of communicationchitty fundmax weber organizational theorymeaning of involuntary unemployment