COBB DOUGLAS PRODUCTION FUNCTION

• This function is also known as Power function,

log linear function, log function or double log
function.
 Algebraic forms of function with one, and
more than one variables
• Original form for one variable:

Log form:
log y = log a + b log x
• For two variable:

Log y = log a + b1 log x1 + b2 log x2

 Characteristics
1. Marginal product:
• If b = 1 then, MP= a , i.e. constant
• If b > 1 then, MP increases
• If b < 1 then, MP decreases

2. When b =1, this function becomes linear function.

3. In Cobb Douglas function, we get either constant,

increasing or decreasing returns/ MP, but not all the
three of even any two at a time.
4. Elasticity of production (EP) is constant, this
function directly gives us the elasticity of
production.
EP = MP/AP

∑bi = b, where bi = b₁+ b₂+…+bn

5. Elasticity of substitution (ES or Ѳ) is one.

•  = % Change in input ratio

% Change in Slope of Isoquant

•  = % Change in input ratio

% Change in MRTS
 The elasticity of substitution = 1

 K L 

K / L
 K L 
K L 
For the Cobb-Douglas, =1 means that a 10% change in
the factor price ratio leads to a 10% change in the
opposite direction in the factor input ratio.
6. It starts from origin only, which sometime
gives wrong estimate, e.g. in case of fertilizer/
irrigation experiments, if we do not use
fertilizer/ irrigation, even though yield will not
be zero. Thus in such case, this function is not
useful.

7. Isoquants are negatively sloped, convex to the

origin and asymptotic to the input axes.
• The isoquant will never touch to the X axis, i.e.it
is asymptotic to X axis.
Any one isoquant can be derived from the
other. It implies that the resources serve as
limitational inputs, i.e. the output becomes
zero when any one of the inputs assumes a zero
value, or minimum resources are needed to
produce atleast some output.

7. Maxima is not defined.

8. Degrees of freedom
The decline in D.F. with the increase in
number of variables is relatively less in Cobb-
Douglas function as compare to quadratic
function. Hence, Cobb- Douglas function is
very much useful when less number of
observations are there.

9. Slope of the MP is negative i.e. MP increases

at declining rate.
10. MRTS is linear function.

11. The isoclines in C.D. function is a linear equation with zero

intercept. Hence the isoclines are straight lines passing through
the origin i.e. Every isoclines in C.D function is scale line.

12. The ridgelines in C.D. function will lies only on the axes.

13. Conveniency:
This function is practically more convenient since it is linear in
log and it directly gives returns to scale and elasticity of
production. The returns to scale indicate percentage change in
output due to one percent change in all the inputs
simultaneously.
14. Maximum profit is obtainable.
15. Shape of the function:
It flattens out as input increases, i.e. a small
change in price ratio will shift the optimum
level of input very much, which is ridiculous.
16. Returns to scale:
The returns to scale can be easily estimated
from the C.D. production function. Summation
of powers of all the input variables provides us
directly returns to scale.
 Returns-to-Scale: Example
The Cobb-Douglas production function is

a1 a 2 an
y  x1 x 2  xn .
a1 a2 an a1  an
(kx1 ) (kx 2 ) (kxn ) k y.

The Cobb-Douglas technology’s returns-

to-scale is
constant if a1+ … + an = 1
increasing if a1+ … + an > 1
decreasing if a1+ … + an < 1.
 EXAMPLE
Year 1899 1900 1901 1902 1903 1904 … 1917 1918 1919 1920
P 100 101 112 122 124 122 227 223 218 231

L 100 105 110 117 122 121 … 125 198 201 194
K 100 107 114 122 131 138 … 335 366 387 407