What are the special properties of the Cobb-Douglass production function, and how might the function be...

What are the special properties of the Cobb-Douglass production function, and how might the function be used to calculate the sources of growth?

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Expert Solution

Cobb-Douglas function is given by:

Y =A(L^α)(K^β)

Some of the special properties of the Cobb-Douglas functions are:

It is a homogeneous function with homogeneity equalling α + β, where α and β represent factor shares of labor and capital in the output respectively.
Marginal product of labor and marginal product of capital are downward sloping curves.
If α + β=1 we call it constant economies of scale that is output increases proportionally with the increase in either of capital or labor.
Coefficient of partial elasticity of output with respect to labor or capital is always constant.

On analysis of the Cobb-Douglas function, we could relate with the contribution of labor production and the amount of physical capital formed, and how these two factors contribute to output growth in the long run. The total factor productivity in the cobb douglas function accounts for the economic efficiency in the economy being considered. The coefficients α and β give the respective weightage of labor and capital in the output generated.

Hope this helps. Cheers!

Rahul Sunny answered 1 year ago

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