Elements of Numerical Mathematical Economics with Excel

6.6. Two-inputs production functions

1. Cobb–Douglas production function

Probably the most used in the economic production theory, the Cobb–Douglas is a production function that implements labor L and capital K as inputs and it is expressed as:

y = A ( L α K β )

where:

1. • y   =   total production.
2. • L   =   labor input (e.g., man-hours of the workforce).
3. • K   =   capital input (e.g., machine-hours referred to the fixed capital employed or real value of equipment).
4. • A   =   factor productivity.
5. • α and β are the output elasticities of capital and labor, respectively. Output elasticity measures ...