Cobb-Douglas & Leontief Production Function

Cobb-Douglas Production Function It is the most frequently used production function to estimate production relationship It is written as : Q = ALK, where: Q = total production (the monetary value of all goods produced in a year) L = labor input K = capital input A = total factor productivity and are the output elasticities of labor and capital, respectively. These values are constants determined by available technology.

 Output elasticity measures the responsiveness of output to a change in levels of either labor or capital used in production, ceteris paribus. For example if = 0.15, a 1% increase in labor would lead to approximately a 0.15% increase in output.
Suppose L&K is doubled then Q1=A(2K)a(2L)b or, Q1=2a+b (AKaLb) or, Q1=2a+b Q If a+b=1, we have CRS a+b<1, we have DRS a+b>1, we have IRS

Marginal Products &Average Products

MPK = dQ/dK = aAKa-1Lb MPL = dQ/dL=bAKaLb-1
APK = ALK / K APL = ALK / L

To estimate a C-D production function, it must be transformed into a linear relationship by taking the logarithm of each term i.e, log Q = log A + a Log K + b Log L or. Y = A* + a X1 + b X2, where Y= log Q, A* = Log A, X1=log K, X2= log L

 The Leontief production function or fixed proportions production function is a production function that implies the factors of production will be used in fixed (technologically pre-determined) proportions, as there is no substitutability between factors. It was named after Wassily Leontief and represents a limiting case of the constant elasticity of substitution production function. The function is of the form q =min{(x1/a), (y1/b)} where q is the quantity of output produced, x1and y1 are the utilized quantities of input (x) and input (y) respectively, and a and b are technologically determined constants.

Suppose that the intermediate goods "tires" and "steering wheels" are used in the production of automobiles (for simplicity of the example, to the exclusion of anything else). Then in the above formula q refers to the number of automobiles produced, z1 refers to the number of tires used, and z2 refers to the number of steering wheels used. Then the Leontief production function is Number of cars = Min{ times the number of tires, 1 times the number of steering wheels}.

From the two examples of production function, we see that Cobb-Douglas productions allow for some degree of substitutability among production inputs while Leontief production functions do not. In Cobb-Douglas optimal output solutions will occur at points of tangency between isoquant and isocost curves

In Leontief Production function, isoquants are L-shaped showing single combination of two inputs at k which production can take place.

Isoquant
Isocost line