PRODUCTION FUNCTION

The resources and methods used to transform tangible inputs(raw

materials , semifinished goods , subassemblies)and intangible
inputs(ideas , information , knowledge)into goods or services has
outputs . Resources Mgt= Managementare used in this process to create
and output that is suitable to use or has exchange value . Hence any
production or operation needs inputs like land , labour , capital ,
machinery/technology , management , market etc .
A production function can be expressed in a functional form as the right
side of
P=f(L , Lr , C , T , Mgt)
Where P is the dependent variable and others inputs are the
independent variables .
P= Output
L= Land
Lr= Labour
Cobb Douglas Function
• The Cobb Douglas production function is a particular functional form of the production function ,
widely used to present the technologies relationship between the amounts of two or more
inputs(particularly physical capital and labor)and the amount of output that can be produced by
those inputs . The Cobb Douglas form was developed and tested against statistical evidence by
Charles Cobb and Paul Douglas during 1927-1947 .
• In its most standard form for production of a single good with two factors , the function is Y =
𝐴𝐿𝛽 𝑘 𝛼
• all Where
• y = total production(the real value of all goods produced in a year)
• L = labour input(the total number of persons worked in a year)
• K = capital input(the real value of all machinery , equipment , and buildings)Definition of buildings
need clarification . In the context of capital , building include labor . Instead , commodities should
be added .
• A = total factor productivity and your usual depreciation by utility in day after
• α and β are the output elasticity 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 productions , ceteris paribus , For example , if α = 0.45 , a 1% increases in capital
usage would lead to approximately a 0.45% increases in output .
• Sometimes the term has a more restricted meaning , requiring that the function display constant