Friday, February 21, 2014

Cobb-Douglas Production Function.

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