Cobb-Douglas Production Function.
One of the important
tool of statistical analysis in production function that measures the relation
between change in physical input is cob-Douglas production function . The
concept was originated in USA. This is more peculiar to manufacturing concerns.
The cob-Douglas formula says that labour contributes about 75% increases in
manufacturing production while capital contributes only 25%.The formula is as
follows:-
O=KLaC
(1-a)
Where O is output. L is
the quantity of labour „C‟ is the quantity of capital employed K and
a(a<1)are positive constants. a and 1-a measure percentage response of
output to percentage change in labour and capital respectively.
The production function shows at One
(1%)percentage change in labour, capital remaining constant, is associated with
0.75% change in output . Similarly One percentage change in capital, labour
remaining constant, is associated with a 20%change in output. Returns to scale are
constant. That is if factors of production are increased, each by 10 percentage
then the output also increases by 10 percentage
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