Suppose you have data on output quantity, labor input, and capital input for all the firms (N-50) in a given industry. Suppose we believe that the production function is Cobb-Douglas: (a) Transfo...
A “Cobb–Douglas” production function relates production (Q) to factors of production, capital (K), labor (L), and raw materials (M), and an error term u using the equation: ? = ???1??2M?3? ?, where ?, ?1, ?2, and ?3 are production parameters. a) Suppose that you have data on production and the factors of production from a random sample of firms with the same Cobb–Douglas production function. How would you propose to use OLS regression analysis to estimate the above production parameters,...
8.5. Consider the Cobb-Douglas production function Y = BILB2 KB where Y= output, L = labor input, and K = capital input. Dividing (1) through by K, we get (Y/K) = B.(L/KB2 KB2+B3-1 Taking the natural log of (2) and adding the error term, we obtain In (Y/K) = Bo + B2 In (L/K) + (B2+ B3 - 1) In K+u; (3) where Bo = In BI. a. Suppose you had data to run the regression (3). How would you...
Economists at the Wilson Company are interested in developing a production function for fertilizer plants. They have collected data on 15 different plants that produce fertilizer as shown in the table below. Plant Production Capital Labour 1 606 18891 700 2 566 19201 652 3 647 20655 823 4 524 15082 650 5 712 20300 859 6 488 16079 613 7 762 24194 851 8 443 11504 655 9 821 25970 901 10 398 10127 550 11 897 25622 842...
All firms produce according to a Cobb-Douglas production function. This production function should look familiar to you. It says that output Q is related to inputs K and L as: This production function implies that the cost-minimizing demand for capital will be Ou where w is the wage rate, r is the cost of capital, Q is output level, and α and β are parameters We will assume that α + β 1; this is the constant-returns-to-scale assumption we saw...