A standard tool of economic analysis is the Cobb-Douglas production function. Th

Question

A standard tool of economic analysis is the Cobb-Douglas production function. This function shows how much output (Q) is produced with a given amount of labor (L) and capital (K) as follows: Q = AK^alpha L^(1-alpha)....The parameter A represents the efficiency of the economy, so A increases with technological change. Suppose that, over time, efficiency, capital and labor each grow at the rates, A(t) = Aoe^(ct), K(t) = Koe^(ft), and L(t) = Loe^(gt), where Ao, Ko, and Lo are initial values for technology, capital, and labor, respectively, and c, f, and g are their respective rates of growth. What is the percentage growth rate of output in terms of the production parameters and the growth parameters c, f, and g? The derivative of a natural logarithm is close to a percentage change.

Explanation / Answer

The answer is :

The growth rate of output=the growth rate of A+alpha(the growth rate of K)+(1-alpha)the growth rate of L.

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