Cobb Douglas production function is an important function in managerial economics. It was explained by Prof. Cobb and Prof. Douglas. These two economists have studied the production patterns of American manufacturing industry. The production function explained by them is known as Cobb-Douglas production function, in their names.
Equation of Cobb Douglas Production Function: Their production function is mentioned as follows:
P=K L a C I -a
In the above equation ‘P’ denotes the output, ‘L’ stands for the amount of labor employed, C represents the amount of capital. K and a are the positive constants.
The Cobb Douglas production function had 3/4 contribution of labor and 1/4 contribution of capital. This is similar to linear homogeneous production function showing constant returns to scale. At first the two economists have applied their principle to American manufacturing industry. The production function solved by them is p = KL. 0.75. C 0.25. The total value of L and C is equal to f. If labor and Capital are increased by ‘N’ times, output also increases by ‘N’ times.
Importance of Cobb Douglas Production Function:
The concept of production function is an important one.
1) This concept is essential for understanding the theories of production. In fact study of production itself is a study of production function
2) It is useful for understanding the law of variable proportions
3) It is also useful for understanding the returns to scale.
4 ) It is also useful for understanding the nature of costs of production.
5) It is also useful for understanding the isoquant curves.
Limitations of Cobb Douglas Production Function
Cobb Douglas Production Function is criticized on the following grounds
1) Cobb Douglas production function shows constant returns. But in actual practice such returns are not possible and some what rare. Normally firms are subject to either increasing or diminishing returns. It is not possible to combine the different factors due to the scarcity of factors and due to their indivisibility.
2) No single producer raises output for the sake of getting constant returns. The producer aims not at constant returns but at achieving increasing returns.
3) This production function is not applicable to agriculture.
