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What would you do to the Cobb-Douglas equation if you wanted its intercept to be 5...

What would you do to the Cobb-Douglas equation if you wanted its intercept to be 5 something other than zero? (This might be the case if you wanted to represent a positive fixed cost that is incurred even when no output is produced).

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Answer #1

The usual Cobb Douglas equation is . To give this equation an intercept, we can simply add the intercept to the equation, ie , where c>0 will be the intercept, verified as Q = c, when K=L=0.

However, it is to be noted that the intercept would not be representing a fixed cost. In this case, there is no scenario of no output being produced as for , we have , meaning either L or K would have to be negative, which is not feasible. The fixed cost, which exist only in the short run, is always represented as in the cost function where r is capital rent and is fixed in the short run.

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