For the Cobb-Douglas production function F(L,K)= AL^aK^b,a factor-neutral technical change would be represented by A) An increase in the value of a B) An increase in the value of b C) Values of a and b for which a + b 1 D) An increase in the value of A

Question

For the Cobb-Douglas production function F(L,K)= AL^aK^b,a factor-neutral technical change would be represented by A) An increase in the value of a B) An increase in the value of b C) Values of a and b for which a + b > 1 D) An increase in the value of A

Quizplus · Accepted Answer

A factor-neutral technical change only affects the constant term A in Cobb-Douglas production function. Its value determines the level of output for a given combination of factor inputs. Therefore, an increase in the value of A represents a factor-neutral technical change as it increases the overall level of output without favoring any specific input. The values of a and b represent the elasticity of output with respect to labor and capital inputs, respectively, and an increase in either of them would represent a factor-biased technical change. The condition a+b>1 is required for the production function to exhibit increasing returns to scale.

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

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