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Math Help - Cobb-Douglas Utility Functions - Economics - Microeconomics

  1. #1
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    Cobb-Douglas Utility Functions - Economics - Microeconomics

    Hello,

    I have been learning about Cobb-Douglas Utility functions and Cobb-Douglas Production functions. Some of the reading I have incontured have left me confussed. Does anyone know how the utility function difffers from the production function in terms of explaining the exponents. I know that Cobb-Douglas production function's exponents measure returns to scale, but what I am confussed on is what do the utility function's exponents measure. Is it elasticity or still returns to scale? I know that they must be positive and add up to 1.

    I am trying to understand a clear definition of what the exponents of the Utility function represent. I have been unable to find any clear definition in any book or online.

    If anyone could enlighten me on the differences that would be of great help.
    Thank you
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  2. #2
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    Re: Cobb-Douglas Utility Functions - Economics - Microeconomics

    The coefficients on the cobb-douglas utility function equal the proportion of total income that will be spent on that good at the utility maximising point.

    im pretty sure, but i haven't checked, that something analagous will be true for the production function if the coefficients add up to 1.


    PS: you asked about returns to scale ofa utility function. i dont think the concept of "returns to scale" really has any meaning when you are talking about utility functions. The distance between two utility values has no specicial significance, all that matters is which one is bigger (not by how much).
    Last edited by SpringFan25; April 21st 2012 at 09:50 AM.
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  3. #3
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    Re: Cobb-Douglas Utility Functions - Economics - Microeconomics

    Thank you. A book that I was looking at defined the Cobb-Douglas production function exponents as being the determinats of whether or not there are returns to scale, but it did not say anything about the utility functions exponents. So, I was trying to figure out what was the difference. I think your answer helped. Thank you.
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