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    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.

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