addition of complex multifactor models of economic growth, often using simplified, two-factor models.Cobb-Douglas - a model that shows the dependence of the output (Q) of the factors contributing to it: labor costs - (L) and capital - (K).
Economists have proposed two possible options for constructing two-factor models based on STP and without registration.
Cobb-Douglas based NTP
economic model, which takes into account the real achievements of scientific and technical progress, labor and capital more productive.In such circumstances, it is possible to obtain higher profits under the same operating cost of labor and resources.In this model, some types of investments contribute to an increase in cash costs and saves labor and other - lead to a reduction in investment.The first type of investment leads to a saving of labor, and the second - to save capital.
approach, not taking into account the NTP
model in terms of the economy, is not considered as STP, there is an accumulation of capital at a fixed cost.Studies economists show that this approach leads to a decrease in the final product.
On the one hand, this situation may seem unnatural.But in fact, this phenomenon is quite possible that on the one hand to achieve STP is imposed, on the other hand, it denied businesses because there is no effective incentives for the introduction of innovations into production.As a result, the company suffers the extra costs for the purchase of new equipment which is not used in the production process, but only hangs on the balance sheet and reduce its performance.
easy to see that there may be intermediate solutions that combine the two approaches described.
Cobb-Douglas model to determine economic growth
the first time this model was proposed by Knut Wicksell.But only in 1928, it was tested in practice, economists Cobb and Douglas.Production Cobb-Douglas function allows you to determine the level of total output Q Number of labor and capital invested (L and K).
function looks like this:
Q = A × Lα × Kβ
where: Q - The volume of production;
L - Manpower;
K - Capital investments;
A - technological factor;
α - value of elasticity of labor costs;
β - value of elasticity of investment.
For example, consider the equation Q = L0,78 K0,22.In this equation shows that the share in the total product of labor is 78% and the share capital - 22%.
Limitations of the Cobb-Douglas production
Cobb-Douglas function implies certain limitations that should be taken into consideration when using the model.
production volumes increase, if one factor remains constant, and the second increases.This is the essence of the first and second constraints.Moreover, if one of the factors is fixed, while the other grows, the marginal unit of each factor is not growing as effective as the previous value.
At a constant value of one of the factors of the gradual growth of other factors will cause a reduction in growth in the value of production (Q).This is the third and the fourth constraint Cobb-Douglas model.
fifth and sixth constraints suggest that each of the factors of production is significant.That is, if one of the factors is 0, respectively, and Q will be zero.
