PRESENTATION ON COBB DOUGLAS PRODUCTION FUNCTION.

COBB-DOUGLAS PRODUCTION FUNCTION:

C.W. COBB & P.H. DOUGLAS made a statistical inquiry

into some manufacturing industries in America & other countries to trace the empirical relationship between changes in physical inputs & resulting output. According to them , a generalized form of production has two variable inputs : LABOUR & CAPITAL.

 Q=a(LbK1-b) where Q is the quantity of output , L & K

stand for quantities of labor & capital. While a & b are positive constants. Production function involves the transformation of all inputs into outputs. In production function we study different combinations of inputs producing various quantities of output under different technical conditions.

 Output can be produced by keeping one factor or some

factors fixed while other factors are varied. This is the traditional production function which held sway over the economists mind for well over two centuries. Another type of production function is one in which only one factor s variable while other factors are kept constant. In another type of production function the quantities of every input in the combination of inputs can be varied to produce different quantities of output.

ISO- QUANT (EQUAL PRODUCT CURVE)

The equal product curve is also called as production iso- quant. Iso-quant means equal quantity.
It represents all combinations of two factors includes.

Measures a quantum of production resulting from alternative combination of two variable inputs.

EQUAL PRODUCT CURVE (ISO-QUANT)

Y IQ

CAPITAL

X10 O LABOUR X

PROPERTIES :
Iso-quants have negative slope: this means that in order to maintain a given level of output, when the amount of one factor input is increased that of the other must be decreased.
Iso-quants are convex to origin Iso-quants do not intersect : this is necessary because by definition each iso-quants represents a specific quantum of output. Iso-quant are oval shaped curve.

ISO-COST:
The concept of ISO-COST line is similar to BUDGET LINE.
ISO-COST line is a graphical representation of a line

showing all of the combinations of two factors (labor & capital)that can be purchased for a given expenditure outlay by the firm.

Suppose total outlay is Rs 100 labor cost is Rs 10 per unit. Capital cost is Rs 30 per unit. Some alternative factor combinations are assumed as follows :

combinations
A B C

Capital (K)
3 2 1

Labor(L)
1 4 7

Plotting these values on a graph, joining the points a , b & c. we get iso-cost line.

UNITS OF CAPITAL (K)

A a
3

b
2

c
1

UNITS OF LABOUR (L)

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