Production Function of Companies - The Case of Macedonia and Albania

The purpose of this study is to empirically analyze production function and productivity for companies in Albania and Macedonia. The main contribution to knowledge derived is the evidence for describing productivity. The main hypothesis of the study is: companies in respective countries possibly do not operate at their minimum cost. The aim of the study is to measure productivity function and scale of economies for small and medium sized enterprises in transition countries respectively in Albania and Macedonia. The research on productivity is large both at micro and macro level and the research is build on using different approaches of measuring productivity and therefore is also subject to different measurement challenges and problems. For empirical analyses data are extracted from BEEPS dataset and a Cobb-Douglas production function is estimated. We estimate an equivalent linear function of logarithms of Cobb-Douglas production function. The resulting estimated coefficients of the Cobb-Douglas production function are output elasticity’s of respective inputs and in our estimation output elasticity of capital is 0.46 and output elasticity of labor is 0.78.