Production Fuction

PRODUCTION FUNCTIONS

Marginal and Average Product
 Average Product
 Capital  Labour
Q K Q L

Q Q

 Marginal Product
 Capital  Labour

AP

Q Q  K K

Q Q  L L

MPK,L

Cobb-Douglas Production Function

Q  L K





or q    l  k

 Q is physical output, and can be either a

scalar, if only one item or product is manufactured, or it canbe a vector, if several products are manufactured simultaneously.

Cobb-Douglas Production Function

Q  L K





 L is a matrix formed by all possible types and ages of labour orhuman capital, that is, by the working abilities of the employees.  K is a matrix of al production goods by category and age, including machinery and equipment of the company, plus used overhead such asmotorways, roads, public lighting, potable water and sewage installations. In both cases, age is used to include incorporated technological change, assuming technology is improving through time.Cobb-Douglas Production Function

Q  L K





or q    l  k

  is a measure of labour to total output; or the elasticity

of output to changes in the labour input.   is ameasure of the contribution of capital to total output; it is also the elasticity of output to changes in the capital input.   is the measure of technological change not incorporated in capital or inhuman beings. It is, thus, a measure of the contribution of soft technology to total output. Such soft technology is assembled in manuals, rules and routines and comes from learning by interacting.Other Possible Interpretations

  

α measures technical change embedded in capital goods β measures technical change embedded in human beings γ measures technical change embedded inorganisations but that isn’t incorporated to capital or labour. It is usually found in the form of distributed knowledge and the routines that invoke it.



γ also manifests itself in the organisation’s...