Abstract
Recently, businessmen as well as industrialists are very much concerned about the theory of firm in order to make correct decisions regarding what items, how much and how to produce them. All these decisions are directly related with the cost considerations and market situations where the firm is to be operated. In this regard, this paper should be helpful in suggesting the most suitable functional form of production process for the major manufacturing industries in Bangladesh. This paper considers Cobb-Douglas (C-D) production function with additive error and multiplicative error term. The main purpose of this paper is to select the appropriate Cobb-Douglas production model for measuring the production process of some selected manufacturing industries in Bangladesh. We use different model selection criteria to compare the Cobb-Douglas production function with additive error term to Cobb-Douglas production function with multiplicative error term. Finally, we estimate the parameters of the production function by using optimization subroutine.
Highlights
This paper considers Cobb-Douglas (C-D) production function with additive error and multiplicative error term
We estimate the parameters of the production function by using optimization subroutine
A developing country like Bangladesh which is facing enormous problems so far as industrialization policy is concerned does not follow the policy of Marxian Economy, neither it strictly follow the policy of a Capitalist country
Summary
A developing country like Bangladesh which is facing enormous problems so far as industrialization policy is concerned does not follow the policy of Marxian Economy, neither it strictly follow the policy of a Capitalist country. Every industrialist tries to produce goods with maximum profit but with minimum cost. The industries need various inputs such as labor, raw material, machines etc. An industry’s production cost depends on the quantities of inputs it buy and on the prices of each input. An industry needs to select the optimal combination of inputs, that is, the combination that enables it to produce the desired level of output with minimum cost and with maximum profitability. The main objective of this paper is to select the appropriate Cobb-Douglas production function. We estimate the parameters of the production function by using optimization subroutine
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