Production function/Tutorials: Difference between revisions

Revision as of 07:58, 2 September 2008

The Cobb-Douglas function has the form:

Y = A. L^α . C^β,

where

Y = output, C = capital input, L = labour input,

and A, α and β are constants determined by the technology employed.

If α = β = 1, the function represents constant returns to scale,

If α + β < 1, it represents diminishing returns to scale, and,

If α + β > 1, it represents increasing returns to scale.

It can be shown that, in a perfectly competitive economy, α is labour's share of the value of output, and β is capital's share.

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-[[Cobb-Douglas production function]]: Y&nbsp;=&nbsp;A&nbsp;×&nbsp;C<sup>a</sup>&nbsp;×&nbsp;L<sup>b</sup>, where Y stands for yield, C for capital, L for labour, and A, a and b are constants that can be interpreted as A for technology level and a and b for the production elasticities.
+===The Cobb-Douglas production function===
+The Cobb-Douglas function has the form:
+::Y&nbsp;=&nbsp;A.&nbsp;L<sup>α</sup>&nbsp;.&nbsp;C<sup>β</sup>,
+where
+: Y = output,&nbsp; C = capital input,&nbsp;L = labour input,
+: and A, α and β are constants determined by the technology employed.
+If α = β = 1, the function represents constant returns to scale,
+If α + β < 1, it represents diminishing returns to scale, and,
+If α + β > 1, it represents increasing returns to scale.
+It can be shown that, in a perfectly competitive economy, α is labour's share of the value of output, and β is capital's share.