Question

Economics

Consider the following regression models for the Cobb-Douglas production function:
Qi = 1 Ki2 Li3 eui Population model
Where Q = output, K=capital, L=labour, U = the error term, e = exponent (2.72)
Qi = bi Kib2 Lib3 ei Sample model is the sample error term
Linearize the sample model by taking logs.
The OLS method provides the following results concerning the logarithmic version
ln Qi = 3.89 + 0.47 ln Li + 0.52 ln Ki
Standard errors (0.396) (0.099) (00.097)
R2 = 0.9642 n = 51 Adjusted R2 = 0.9627
a) Interpret the coefficients on ln L and ln K.
b) Examine whether the coefficients on ln L and ln K are statistically significant at the 5% level, based on t-statistic. The critical value of t0.025 at 48 degrees of freedom is 2.01. Note: you will have to compute the actual t-statistics using the coefficients and standard errors.
c) Interpret the value of the R2. What do you mean by the Adjusted R2?
d) How would formally test whether the production function shows constant returns to scale? Describe all the steps. ( You don’t have to calculate).

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Answer 1

Answer:

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