Answer to Question #221934 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

Solution:

The special properties of the Cobb-Douglas production function include the following:

·        It exhibits constant returns to scale.

·        It tells that the average product and marginal product of factors is a function of the ratio of the factors.

·        It is a homogeneous function with the degree of homogeneity of the function being alpha and beta.

·        The elasticity of substitution between the inputs is constant and equal to one due to the functional form.

·        The isoquants of the firm would be negatively sloped and these curves would be convex to the origin.

·        The Marginal Rate of Substitution between Capital and Labor (MRS LK) can be derived from the Cobb-Douglas function.

 

The Cobb-Douglas production function is mainly used to represent the technological relationship between the amounts of two or more inputs, (that is capital and labor) and the amount of output that can be produced by those inputs. It models the relationship between production output and production inputs, including calculating the ratios of inputs to one another for efficient production and to approximate technological changes in production methods.