Factor flexibility and returns to scale: A comparative application for Cobb-Douglas production function in SMEs

Knowledge of the contribution of the production factors to production, their factor densities, and their state of returns to scale are important in production management. The effect of production factors to production can be determined by various methods. Cobb-Douglas production function is one of the most useful methods giving accurate results in determining factor flexibilities.This work has been done for determining the production structure of SMEs in Erzurum. A field research has been made in Erzurum Organized Industrial Zone within the scope of this study. A survey has been conducted with 25 manufacturing enterprises in the field research and the production factors and the production data of these enterprises have been collected. The data obtained has been analyzed in 4.02 RATS econometric program. As a result of the analysis, the flexibility of the production factors of SMEs and their state of returns to scale has been revealed.In conclusion, it has been found out that the production flexibility of labor and capital are close to each other and there is constant returns to scale.