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Wire-grid Cobb–Douglas production surface with isoquants A two-input Cobb–Douglas production function with isoquants. In economics and econometrics, the 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 ...
As its name suggests, the CES production function exhibits constant elasticity of substitution between capital and labor. Leontief, linear and Cobb–Douglas functions are special cases of the CES production function. That is, If approaches 1, we have a linear or perfect substitutes function;
Charles Wiggins Cobb (September 17, 1875 – March 2, 1949) was an American mathematician and economist and a 1912 Ph.D. graduate of the University of Michigan.He published many works on both subjects, however he is most famous for developing the Cobb–Douglas production function in economics.
The equation below (in Cobb–Douglas form) is often used to represent total output (Y) as a function of total-factor productivity (A), capital input (K), labour input (L), and the two inputs' respective shares of output (α and β are the share of contribution for K and L respectively). As usual for equations of this form, an increase in ...
Elasticity of substitution is the ratio of percentage change in capital-labour ratio with the percentage change in Marginal Rate of Technical Substitution. [1] In a competitive market, it measures the percentage change in the two inputs used in response to a percentage change in their prices. [2]
In the long run, all factors of production are variable and subject to change in response to a given increase in production scale. In other words, returns to scale analysis is a long-term theory because a company can only change the scale of production in the long run by changing factors of production, such as building new facilities, investing ...
A Cobb–Douglas production function is an example of a production function that has an expansion path which is a straight line through the origin. [6]
A Cobb-Douglas-type function satisfies the Inada conditions when used as a utility or production function.. In macroeconomics, the Inada conditions are assumptions about the shape of a function that ensure well-behaved properties in economic models, such as diminishing marginal returns and proper boundary behavior, which are essential for the stability and convergence of several macroeconomic ...