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Table of Contents
Production Function Example
1- Example of a Cobb Douglas Production Function
The Cobb Douglas Production Function is widely used in economic models. It takes the following form:
Q(L,K) = A Lβ Kα
L:labor
K:capital
Q:output
A>0
0<α<1
0<β<1
The main characteristics of the Cobb-Douglas production function are:
- The marginal product is positive and decreasing.
- Output elasticity is constant, equal to α for L or β for K.
- Return to scale are α+β
This example is as follows:
A = 50
α = 0.7
β = 0.3
The plot of this example is:
2- Example of a Linear Production Function
This is the simplest example. In this example, the output is in a direct linear relationship with the quantity of a single input. For example, if each robot can produce 100 T-Shirts per hour, and there are no other inputs, the production function will be:
Q = 100 K
Where: Q = Quantity of T-Shirts per Hour K = Number of Robots
Discussion