In: Statistics and Probability
Q= aLB1FB2KB3
Where Fuel input in gallons = F
Capital input in number of busses = K
Labor input in worker hours = L
Output in millions of bus miles = Q
We estimate the various parameters as follows using historical data:
α=0.0012, β1=0.45, β2=0.2, β3=0.3
a) Determine output elasticities for Labor.
b) Suppose that labor hours increase by 10%. By what percentage will output increase?
ANSWER::
The following production function for bus transportation in a particular city: Q= a
Where Fuel input in gallons = F
Capital input in number of busses = K
Labor input in worker hours = L
Output in millions of bus miles = Q
We estimate the various parameters as follows using historical data:
α=0.0012, β1=0.45, β2=0.2, β3=0.3
a)
solution:
The output elasticities for labour is
The regression model for the above question is given below
Q = α + β1*F + β2*K + β3*L
Q = 0.0012 + 0.45*F + 0.2*K + 0.3*L
b)
solution:
Suppose that labor hours increase by 10% then the coefficient of labour hours is 0.3 and L = 10%
then output increases by 0.3% at all the variable at constant
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