Cobb-Douglas function

CFA Level III Economics
#1

Hello, In every explanation of the cobb-douglas function i have read, they give us A and K without really defining it, or at least not enough for me. Thus, i would really appreciate a definition, differences and example for A and K. The equation is Y = A*Kα * Lβ

A = Total factor producvity (or improvment in technology)

K = capital deepening (or increase of K/L ratio)

If a company buys a new 3D printer machine, the capital per worker increases (K) but the technology increases also (A) !! So what is the difference ?

Moreover, i have read in schweser something called “total factor cost” in the sequence below : “the share of output allocated to capital (K) and labor (L), respectively {α and (1 - α) are also referred to as capital’s and labor’s share of the total factor cost, where α < 1 }”

It is complicated… Thanks

#2

I wrote an article on the Cobb-Douglas production function that covers this pretty well: http://www.financialexamhelp123.com/cobb-douglas-production-function/.

(Full disclosure: as of 4/25/16 there is a charge to read the articles on my website. You can get an idea of the quality of the articles by looking at the free samples here: http://www.financialexamhelp123.com/sample-articles/.)

Some investments in capital come with improvements in technology; others do not. If you buy more pencils per employee, you’ve increased your capital investment, but likely not your total factor productivity.