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The Cobb-Douglas utility function has the form u(x, y) = x a y 1 – a for 0 < a < 1. Figure 10 shows combinations of commodities X and Y that result in the utility level u(x, y) = Read more…

A Cobb-Douglas production expresses the quantity Q of output as a function of capital K, and labor L. An example is Q=2K^{0.4}L^{0.6}. The exponents of each factor represent the share of an increase in Q attributable to that factor. What Read more…

We’ve shown that the Cobb–Douglas function gives diminishing returns to both labor and capital when each factor is varied in isolation. But what happens if we change both K and N in the same proportion? So if we scale both Read more…

A = total factor productivity. α and β are the output elasticities of capital and labor, respectively. These values are constants determined by available technology. What does Alpha mean in Cobb-Douglas? Alpha is simply the percentage of capital I use Read more…

Y = total production (the real value of all goods produced in a year or 365.25 days) L = labour input (person-hours worked in a year or 365.25 days) K = capital input (a measure of all machinery, equipment, and Read more…

The Cobb–Douglas form was developed and tested against statistical evidence by Charles Cobb and Paul Douglas during 1927–1947. How we get the formula f(K,L)=AKaL1−a? Who invented Cobb-Douglas? At the 1927 meetings of the American Economic Association, Paul Douglas presented a Read more…

There are several classes of utility functions that are frequently used to generate demand functions. One of the most common is the Cobb-Douglas utility function, which has the form u(x, y) = x a y 1 – a. Another common Read more…