📢 Too many exams? Don’t know which one suits you best? Book Your Free Expert 👉 call Now!
  • google app store apple app store
    • ✖

      Question

      The 'Cobb-Douglas' production function is most closely

      associated with which concept of national income distribution?
      A Functional distribution between rent and wages Correct Answer Incorrect Answer
      B Personal distribution of income Correct Answer Incorrect Answer
      C Relative shares of labour and capital Correct Answer Incorrect Answer
      D Distribution between rural and urban income Correct Answer Incorrect Answer
      E Inter-industry income disparity Correct Answer Incorrect Answer

      Solution

      The Cobb-Douglas production function takes the form Y = AL^αK^β, where Y is output, L is labor, K is capital, and α & β are output elasticities. Under the assumptions of perfect competition and profit maximization (where factors are paid their marginal product), a unique property emerges: α represents the share of total national income that is paid to labor (wages), and β represents the share paid to capital (profits/interest). This makes it a fundamental model for analyzing the functional distribution of income between the factors of production, labor and capital, and how their relative shares (α/β) might change over time.

      Practice Next
      More Research Questions
      ask-question