Cobb-Douglas function

Cobb-Douglas function - Suppose output, or GDP, depends on...

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Unformatted text preview: Suppose output, or GDP, depends on inputs of capital and labor. Use a Cobb- Douglas function: Y = A K L 1- . The exponent, , is a parameter of the production function. In a competitive economy operating with a Cobb-Douglas production function, the share of output paid by firms to suppliers of capital equals . The share of output paid to suppliers of labor equals 1- . Historically, capitals share of U.S. GDP has been about 0.30. This function has nice properties: the marginal product of capital is K Y , or the capital coefficient multiplied by output per unit of capital. Since the marginal product of capital equals the interest rate, r K Y = . Solving for you get the ratio of capital income to output, or Y rK ; is capitals share of income. The marginal product of labor is L Y )...
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This note was uploaded on 01/18/2012 for the course ECO 202 taught by Professor Normmiller during the Spring '08 term at Miami University.

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Cobb-Douglas function - Suppose output, or GDP, depends on...

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