**Cobb-Douglas functional forms: ** A particular mathematical form
of a production function of an economic producing unit; i.e. of the
relationship between the level of production Q and the amounts of inputs or
factors of production - capital K and labor L. A simple Cobb-Douglas funtion is
given by:
where, A, a, and b are
econometrically estimated constants. Coefficients a and b have particular
relationships which reflect whether the *returns to scale* of production
are constant, increasing or decreasing. If the sum of a and b is constant, this
means the production function reflects constant returns to scale; i.e. if all
inputs are expanded in the same proportion, output expands in the same
proportion. |