Concavity, Convexity, and Homogeneity

The Cobb-Douglas Function

Sara Sutherland

Claim: Cobb-Douglas Production Function homogenous of degree greater

than one is neither concave or convex.

f (x, y) = xa y b

Proof : The Hessian Matrix takes the form:

a(a − 1)xa−2 y b abxa−1 y b−1

 
H=
abxa−1 y b−1 a(a − 1)xa y b−2
If f (x) is concave, the leading principle minors alternate in sign such
that PM2n−1 ≤ 0 and PM2n ≥ 0. If f (x) is convex, all leading principle
minors are greater than or equal to zero.

P rincipleM inor1 = a(a − 1)xa−2 y b

P rincipleM inor2 = ab(a − 1)(b − 1)x2a−2 y 2b−2 − a2 b2 xa−1 y b−1

If f (x, y) is either concave or convex, the second leading principle minor

will be greater than or equal to zero.

P M2 > 0
2a−2 2b−2 2 2 2(a−1) 2(b−1)
ab(a − 1)(b − 1)x y −a b x y >0
ab(a − 1)(b − 1)x2a−2 y 2b−2 > a2 b2 x2a−2 y 2b−2
(a − 1)(b − 1) > ab
ab − a − b + 1 > ab
1>a+b

Which is a contradiction, because the function is homogeneous of degree

greater than 1. Therefore, if a + b > 1, f (x, y) is neither concave or convex.