An Application of Non–Linear Cobb-Douglas Production Function to Selected Manufacturing Industries in Bangladesh

Recently, businessmen as well as industrialists are very much concerned about the theory of firm in order to make correct decisions regarding what items, how much and how to produce them. All these decisions are directly related with the cost considerations and market situations where the firm is to be operated. In this regard, this paper should be helpful in suggesting the most suitable functional form of production process for the major manufacturing industries in Bangladesh. This paper considers Cobb-Douglas (C-D) production function with additive error and multiplicative error term. The main purpose of this paper is to select the appropriate Cobb-Douglas production model for measuring the production process of some selected manufacturing industries in Bangladesh. We use different model selection criteria to compare the Cobb-Douglas production function with additive error term to Cobb-Douglas production function with multiplicative error term. Finally, we estimate the parameters of the production function by using optimization subroutine.