For the Cobb-Douglas production function F(L,K)= AL^αK^β,a factor-neutral technical change would be represented by: A) an increase in the value of α. B) an increase in the value of β. C) values of α and β for which α + β = 1. D) an increase in the value of A.

Question

Quizplus · Accepted Answer

A factor-neutral technical change is one that increases productivity but does not favor any specific factor of production. In the Cobb-Douglas production function, the level of productivity is represented by the parameter A. Therefore, an increase in the value of A will represent a factor-neutral technical change. Options A, B, and C involve changes in the parameters that affect the relative importance of labor and capital in the production process, which would not be neutral with respect to factors of production.

For the Cobb-Douglas Production Function F(L,K)= ALαKβ,a Factor-Neutral Technical Change

For the Cobb-Douglas Production Function F(L,K)= AL^αK^β,a Factor-Neutral Technical Change