AGENTIZING THE COBB-DOUGLAS PRODUCTION FUNCTION

Production functions are useful tools for estimating output over time, and they typically include capital and labor as inputs. The Cobb-Douglas production function is a particularly well-known example, and it has historically been used at the national level and by individual firms to estimate total output over a set time period. Cobb-Douglas function is easy to use and fits well across many data sets. It also demonstrates constant returns to scale. However, the mathematical basis for Cobb-Douglas is speculative. Its formulation was based on statistical data, and while it may correctly represent various situations in the real world, there is no clear mapping between individual contributions to production and the equation's final value for total output. In this paper, we seek to show that an alternative, simplified production model can be used to better understand the production basis of Cobb-Douglas and to work around its disadvantages. Our model accounts for other aspects of the production process, including technological growth and productive capacities, and self-optimizes in response to changes in market demand. We also rationalize the formulation of Cobb-Douglas by moving from the individual level to the firm level.