The so-called
CobbDouglasProductionFunction is frequently used in simple macroeconomic models. It is
Y = A * K^a * L^(1-a)
where
- Y (yield): what is produced (output)
- K (capital): machines, real estate, ...; one kind of input
- L (labour): the other kind of input
- a (really alpha; elasticity of production): the relative influence of capital and labour input on output
- A (total productivity of input): there's also productivity of labour (dY/dL) and productivity of capital (dY/dK); sometimes A is also interpreted as "technology".