Production function/Tutorials

The Cobb-Douglas production function

The Cobb-Douglas function has the form:

Y = A. L^α . C^β,

where

Y = output,  C = capital input, L = labour input,

and A, α and β are constants determined by the technology employed.

If α = β = 1, the function represents constant returns to scale,

If α + β < 1, it represents diminishing returns to scale, and,

If α + β > 1, it represents increasing returns to scale.

It can be shown that, in a perfectly competitive economy, α is labour's share of the value of output, and β is capital's share.