The Cobb-Douglas form was developed and tested against statistical evidence by Charles Cobb and Paul Douglas during 1900–1947. In its most standard form for production of a single good with two factors, the function is Y=AL^{\beta}K^{\alpha} where: Y = total production (the monetary value of all goods produced in a year) L = labor input (the total number of person-hours worked in a year) K = capital input (the monetary worth of all machinery, equipment, and buildings) A = total factor productivity a and ? are the output elasticities of capital and labor, respectively. These values are constants determined by available technology. Output elasticity measures the responsiveness of output to a change in levels of either labor or capital used in production, ceteris paribus. For example if a = 0. 15, a 1% increase in labor would lead to approximately a 0. 15% increase in output.
Further, if: a + ? = 1, the production function has constant returns to scale: Doubling capital K and labor L will also double output Y. If a + ? < 1, returns to scale are decreasing, and if a + ? > 1 returns to scale are increasing. Assuming perfect competition and a + ? = 1, a and ? can be shown to be labor and capital’s share of output. Cobb and Douglas were influenced by statistical evidence that appeared to show that labor and capital shares of total output were constant over time in developed countries; they explained this by statistical fitting least-squares regression of their production function.
The Business plan on The Factors Of Production And Their Rewards
How to enhance the of production factors to grow an economy? Factors of Production are an economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include land, labor, capital and entrepreneurship. The capital is all of the tools and machinery used to produce a good or service. Land represents all ...
There is now doubt over whether constancy over time exists. History Paul Douglas explained that his first formulation of the Cobb–Douglas production function was developed in 1927; when seeking a functional form to relate estimates he had calculated for workers and capital, he spoke with mathematician and colleague Charles Cobb, who suggested a function of the form Y = bL^kC^{1-k}, previously used by Knut Wicksell. Estimating this using least squares, he obtained a result for the marginal productivity of capital k to 0. 5—which was subsequently confirmed by the National Bureau of Economic Research to be 0. 741. Later work in the 1940s prompted them to allow for the exponents on C and L to vary, resulting in estimates that subsequently proved to be very close to improved measure of productivity developed at that time. [1] A major criticism at the time was that estimates of the production function, although seemingly accurate, were based on such sparse data that it was hard to give them much credibility.
Douglas remarked “I must admit I was discouraged by this criticism and thought of giving up the effort, but there was something which told me I should hold on. “[1] The breakthrough came in using US census data, which was cross-sectional and provided a large number of observations. Douglas presented the results of these findings, along with those for other countries, at his 1947 address as president of the American Economic Association. Shortly afterwards, Douglas went into politics and was stricken by ill health—resulting in little further development on his side.
However, two decades later, his production function was widely used, being adopted by economists such as Paul Samuelson and Robert Solow. [1] The Cobb–Douglas production function is especially notable for being the first time an aggregate or economy-wide production function had been developed, estimated, and the presented to the profession for analysis; it marked a landmark change in how economists approached macroeconomics.
The Essay on Outsource Production or Remain Producing at Home?
Based on and inspired by the widespread outsourcing moves of many companies from their home countries to other more “production friendly, non-very costly” countries all over the world, this paper evaluates the logistics factors and trade regulations affecting decision makers such as the management and/or the organization’s board whether to outsource its manufacturing plant or to retain production ...
