1. Lectures in Macroeconomics- Charles W. Upton The Cobb-Douglas Production Function Y = AK  L (1-  )

2. The Cobb-Douglas Production Function History Developed by Paul Douglas and C. W. Cobb in the 1930’s

3. The Cobb-Douglas Production Function History Developed by Paul Douglas and C. W. Cobb in the 1930’s –Douglas went on to be professor at Chicago and U.S. Senator –Cobb - ??

4. The Cobb-Douglas Production Function The General Problem An increase in a nation’s capital stock or labor force means more output. Is there a mathematical formula that relates capital, labor and output?

5. The Cobb-Douglas Production Function The General Form

6. The Cobb-Douglas Production Function Increasing Capital

7. The Cobb-Douglas Production Function Increasing Capital

8. The Cobb-Douglas Production Function Increasing Capital Diminishing returns to proportion

9. The Cobb-Douglas Production Function Increasing Labor

10. The Cobb-Douglas Production Function Increasing Labor

11. The Cobb-Douglas Production Function Increasing Labor Diminishing returns to proportion

12. The Cobb-Douglas Production Function Increasing Both

13. The Cobb-Douglas Production Function Increasing Both

14. The Cobb-Douglas Production Function Increasing Both Constant returns to scale

15. The Cobb-Douglas Production Function Substitution Capital and Labor Can be Substituted

16. The Cobb-Douglas Production Function An Illustration

17. The Cobb-Douglas Production Function An Illustration

18. The Cobb-Douglas Production Function An Illustration

19. The Cobb-Douglas Production Function An Illustration A =3L =10 K =10

20. The Cobb-Douglas Production Function An Illustration

21. The Cobb-Douglas Production Function Doubling Capital

22. The Cobb-Douglas Production Function Constant Returns to Scale

23. The Cobb-Douglas Production Function Substitution

24. The Cobb-Douglas Production Function Estimation

25. The Cobb-Douglas Production Function Estimation

26. The Cobb-Douglas Production Function Estimation Statistical issues abound!

27. The Cobb-Douglas Production Function Best Estimate

28. The Cobb-Douglas Production Function Factor Payments  = % of Income going to owners of capital 1-  = % of Income going to workers

29. The Cobb-Douglas Production Function How well does it work? You can’t beat something with nothing

30. The Cobb-Douglas Production Function CES Production Function

31. The Cobb-Douglas Production Function CES Production Function Suppose 10% increase in wage rate leads to 10% increase in capital labor ratio.  = 1.

32. The Cobb-Douglas Production Function CES Production Function Suppose 10% increase in wage rate leads to 5% increase in capital labor ratio.  = ½.

33. The Cobb-Douglas Production Function CES Production Function In the Cobb-Douglas Production Function,  = 1.

34. The Cobb-Douglas Production Function CES Production Function The CES allows for a different elasticity of substitution. Little gained.

35. The Cobb-Douglas Production Function Leontief Production Function K L

36. The Cobb-Douglas Production Function Leontief Production Function K = aY L = bY K L

37. The Cobb-Douglas Production Function Leontief Production Function K = aY L = bY K L

38. The Cobb-Douglas Production Function Leontief Production Function K = aY L = bY K L  = 0

39. The Cobb-Douglas Production Function Leontief Production Function K = aY L = bY K L Doesn’t work. We can and do substitute labor for capital all the time

40. The Cobb-Douglas Production Function Other Factors?

41. The Cobb-Douglas Production Function And in Conclusion…

42. The Cobb-Douglas Production Function End ©2003 Charles W. Upton. All rights reserved