• Skip to main content
  • Skip to primary sidebar
  • Accounting
  • Banking
  • Business
  • Statistics
  • Economics
  • Finance
  • HR
  • Law
  • Marketing
business-jargons-site-logo

Business Jargons

A Business Encyclopedia

Cobb-Douglas Production Function

Definition: The Cobb-Douglas Production Function, given by Charles W. Cobb and Paul H. Douglas is a linear homogeneous production function, which implies, that the factors of production can be substituted for one another up to a certain extent only.

With the proportionate increase in the input factors, the output also increases in the same proportion. Thus, there are constant returns to a scale. In Cobb-Douglas production function, only two input factors, labor, and capital are taken into the consideration, and the elasticity of substitution is equal to one. It is also assumed that, if any, of the inputs, is zero, the output is also zero.

Likewise, in the linear homogeneous production function, the expansion path generated by the cobb-Douglas function is also a straight line passing through the origin. The CD function can be expressed as follows:

Q = ALαKβ

Where, Q = output
A = positive constant
K = capital employed
L = Labor employed
α and β = positive fractions shows the elasticity coefficients of outputs for inputs labor and capital, respectively.
Β = 1-α

This algebraic form of Cobb-Douglas function can be changed in a log linear form, with the help of regression analysis:

Log Q = log A + α log L + β log K

The homogeneity of the Cobb-Douglas production function can be checked by adding the values of α and β. If the sum of these parameters is equal to one, then it shows that the production function is linearly homogeneous, and there are constant returns to a scale. If the sum of these parameters is less or more than one, then there is a decreasing and increasing returns to a scale respectively.

Related terms:

  1. Production Function
  2. Fixed Proportion Production Function
  3. Variable Proportion Production Function
  4. Linear Homogeneous Production Function
  5. Constant Elasticity of Substitution Production Function

Reader Interactions

Comments

  1. gurinder says

    October 8, 2017 at 7:21 pm

    thanks

    Reply
  2. atri says

    December 1, 2018 at 6:58 pm

    these notes are really beneficial for us. thank you

    Reply
  3. Nimashanthi says

    November 4, 2020 at 3:37 pm

    Simply and nicely explained

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Top Searches

  • Communication Process
  • Planning
  • 7 C’s of Communication
  • Management
  • International Marketing
  • Business Strategy
  • Effective Communication
  • Insurance
  • Strategic Management
  • Selection Process

Trending Now

  • Group
  • Business
  • Accounting
  • Budget
  • Entrepreneurship
  • Journal
  • Leadership
  • Motivation
  • Communication
  • Stress

New Business Terms

  • Corporate Governance
  • Logistics Management
  • Dividend
  • Quorum
  • Corporate Veil
  • Trade Union
  • Warehouse
  • Mistake
  • Ratification
  • Void Agreement

Categories

  • Accounting
  • Banking
  • Business
  • Business Law
  • Business Statistics
  • Economics
  • Finance
  • HR
  • Marketing

Copyright © 2025 · Business Jargons · Contact Us · About Us · Privacy