The Cobb-Douglas production function is: Q = 1.4*L^0.6*K^0.5.What would be the percentage change in output (%?Q)if labor grows by 3.0% and capital is cut by 5.0%?

Question

Quizplus · Accepted Answer

We can use the formula for the percentage change in output to solve this problem: %?Q = α(%?L) + β(%?K) where α and β are the output elasticities with respect to labor and capital, respectively. From the Cobb-Douglas production function, we can see that α = 0.6 and β = 0.5. Plugging in the values, we get %?Q = 0.6(3.0) + 0.5(-5.0) = -0.70%. Therefore, the percentage change in output is a decrease of 0.70%. The answer is (C).

The Cobb-Douglas Production Function Is: Q = 1