What are the properties of Cobb-Douglas production function?
The powers of labor and capital (that are β and α) in the C-D production function measure output elasticities of labor (L) and capital (K) respectively. The output elasticity of a factor shows the percentage change in output due to a given percentage change in the number of factor inputs.
What are the 4 desirable properties in a utility function?
The von Neumann–Morgenstern axioms There are four axioms of the expected utility theory that define a rational decision maker. They are completeness, transitivity, independence and continuity. Completeness assumes that an individual has well defined preferences and can always decide between any two alternatives.
Is Cobb-Douglas a linear function?
The Cobb-Douglas production function is based on the empirical study of the American manufacturing industry made by Paul H. It is a linear homogeneous production function of degree one which takes into account two inputs, labour and capital, for the entire output of the . manufacturing industry.
Is a Cobb-Douglas function homogeneous?
Examples of linearly homogeneous production functions are the Cobb-Douglas production function and the constant elasticity of substitution (CES) production function. If n > 1, the production function exhibits IRS.
What is an increasing utility function?
A function U is strictly increasing if c1 > c2 implies U(c1) > U(c2). Utility functions are real valued functions defined on C. Therefore for any c1, c2 ∈ C, either U(c1) ≥ U(c2) or U(c1) ≤ U(c2) is true (1). If a utility function represents the ≽ then (1) implies that c1 ≽ c2 or that c1 ≼ c2 (2).
What do you mean by Cardinal utility?
Cardinal Utility is the idea that economic welfare can be directly observable and be given a value. For example, people may be able to express the utility that consumption gives for certain goods. For example, if a Nissan car gives 5,000 units of utility, a BMW car would give 8,000 units.
What does the Cobb Douglas utility function show?
One of the most common is the Cobb-Douglas utility function, which has the form u(x, y) = x a y 1 – a. Another common form for utility is the Constant Elasticity of Substitution (CES) utility function. The curve in the figure shows a many combinations of commodities X and Y that all result in the same utility.
