Answer to Question #221724 in Macroeconomics for Isaac Osei Sarpong

Question

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

Answer 1

Properties Cobb-Douglas production function (Y= AL ^β K ^α)

•  Y= Total production (the actual value of goods produced in a year usually 365.25) days
• L= input in form of human resources (labor)-determined as total number of persons-hours worked in the financial year
• K= Input as capital (the total value measure of equipment, machinery, buildings,
• A= The total factor of productivity
•  β and α refers to the output elasticity of labor and capital respectively. The values of β and α are constant and are determined by the applied technology

The GDP estimated and growth can be calculated by sing the formula below. The formula calculates the sources of growth by applying the TFP (total factor of productivity)

 Growth rate is presented as: