An Evaluation of Resource Utilisation in Palm Oil Industry using the Modified Cobb-Douglas Decision Model

Yıl 2019, Cilt: 3 Sayı: 2, 110 - 115, 28.06.2019

Tina Francis-akilaki , Monday Omoregie

Öz

Aggregate production functions, particularly the
Cobb-Douglas model have been widely used in modeling input and output
relationships in various organisations and at national economic levels. Most
commonly used is the two-factor model where all inputs are aggregated as
capital and labour factors of production. In this paper, a six-factor
Cobb-Douglas model has been fitted to a ten-year production data obtained from
a palm-oil producer. By logarithmic transformation, the normal equations
obtained from the model were solved by the Least Squares method to obtain the
output elasticities. The bootstrapping technique was used to establish their
validity. The input components were aggregated
and used in the traditional aggregate Cobb-Douglas model to obtain comparative
results. For the disaggregated model, the output elasticities for the six input
components were found to be 0.1653, 0.0457, 0.0864,-0.3136, 0.0403 and 0.3845
respectively, resulting in a decreasing return to scale of 0.4086. In the case
of aggregate model, we have output elasticities of 0.4578 and 0.2730 for
aggregate capital and labour respectively, also indicating a decreasing return
to scale of 0.7308. However it was found that while the aggregate model gave a
generalized result, the disaggregated approach pointed to specific aspects of
the inputs that were adversely affecting the productivity of the organization
and thus requiring stringent management control. Thus the study showed that the
disaggregated Cobb-Douglas production function is superior to the traditional
two-factor model. The model developed which was statistically tested, is novel
and provides robust decision support for budding and seasoned firms.

Anahtar Kelimeler

Cobb-Douglas Production function, Disaggregated, Return to scale, Output Elasticity, Urn

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