A multiplicative Cobb-Douglas Production Function is writing as Q=AKaLB. We cannot use the Ordinary Least Squares...

A multiplicative Cobb-Douglas Production Function is writing as Q=AK^aL^B. We cannot use the Ordinary Least Squares method (OLS) in Excel to estimate the above multiplicative Cobb-Douglas Production Function since the independent variables are not linear. Hence, by transforming the above Cobb-Douglas production function into natural logs, we make the independent variables into linear. Then we can use the OLS technique.

InK	InL	InQ
3.6889	3.6889	3.4675
3.6889	4.7875	3.8069
3.6889	5.2983	3.7564
3.6889	5.7683	4.0918
4.382	3.6889	3.5946
4.382	4.382	3.5149
4.382	5.0752	4.1281
4.382	5.6348	4.4534
4.7875	4.7875	4.0031
4.7875	5.983	4.1896
4.7875	5.7683	4.5463
5.0752	3.6889	3.643
5.0752	4.382	4.1242
5.0752	5.0752	4.4723
5.0752	5.4806	4.3563
5.2983	4.7875	4.3965
5.2983	5.2983	4.3934
5.2983	5.7683	4.7487
5.4806	3.6889	3.6726
5.4806	5.0752	4.4991
5.4806	5.4806	4.5027
5.4806	5.6348	4.6062
5.6348	4.832	4.219
5.6348	4.7875	4.0904
5.6348	5.4806	4.7451
5.6348	5.7683	4.7228
5.7683	3.6889	3.9925
5.7683	4.7875	4.7719
5.7683	5.2983	4.9012
5.7683	5.7683	4.8305

1. After estimating the transformed Cobb-Douglas production function using the data, write the estimated Cobb-Douglas production equation in natural logarithms. Make sure you use the proper variable names used in the data preparation.

2. Test whether coefficients of capital and labor are statistically significant.

3. What are the labor production elasticity and the capital production elasticity from the regression output.

4. Using the information from Question 3, how much does out put increase if L increases by 2%?

5. Determine whether this production function exhibits increasing, decreasing, or constant returns to scale. (Ignore statistical significance of the variables). Then explain your finding.

6. What's the MP_L at L=50, K=100, & Q= 741?

Expert Solution

Rahul Sunny answered 1 year ago

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