If a Cobb-Douglas production function has alpha = 0.34 and beta = 0.42, then a 1% increase in inputs results in a(n)________ change in output.
A)0.8%
B)8%
C)0.76%
D)-0.76%

Question

Quizplus · Accepted Answer

The Cobb-Douglas production function is given by Y = A * L^alpha * K^beta, where L is labor, K is capital, A is total factor productivity, alpha is the output elasticity of labor, and beta is the output elasticity of capital. The sum of alpha and beta (0.34 + 0.42 = 0.76) gives the elasticity of output with respect to a proportional increase in all inputs. Therefore, a 1% increase in all inputs results in a 0.76% increase in output.

If a Cobb-Douglas Production Function Has Alpha = 0