Assignment 6.9

1 / 32

Assignment 6.9 - PowerPoint PPT Presentation

Assignment 6.9. Artūras Dulko &amp; Gust ė Zefaitė 2012. Exercise 6.9. Data. Production function. K = an index of capital L = an index of labor E = an index of energy use M = an index of intermediate materials Y = an index of output. Cobb-Douglas.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

PowerPoint Slideshow about 'Assignment 6.9' - lev-perry

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Assignment 6.9

Artūras Dulko & Gustė Zefaitė 2012

Production function

K = an index of capital

L = an index of labor

E = an index of energy use

M = an index of intermediate materials

Y = an index of output

Cobb-Douglas
• The simplest production function is the Cobb-Douglas model. It has the following form: Q=aLbCc

where Q stands for output, L for labor, and C for capital. The parameters a, b, and c (the latter two being the exponents) are estimated from empirical data.

• If b + c = 1, the Cobb-Douglas model shows constant returns to scale. If b + c > 1, it shows increasing returns to scale, and if b + c < 1, diminishing returns to scale.
Fisher or F-test

F has Fisher’s distribution Fr,N-(k+1)

r-number of restrictions

N- sample size

k - number of x variables in general

Numerator degrees of freedom = r

Denominator degrees of freedom = N– (k + 1)

• The curve is not symmetrical but skewed to the right.
• There is a different curve for each set of dfs .
• The F statistic is greater than or equal to zero.
• As the degrees of freedom for the numerator and for the denominator get larger, the curve approximates the normal.
Exercise 6.9 a)

Test following hypothesis:a) H0: 2=0 H1: 20

Exercise 6.9 a)

To test this hypothesis we are going to use Fisher or F − test.

Exercise 6.9 b)
• Test the following hypothesis

b) H0:2=0, 3=0

H1: 20 and/or 30

Exercise 6.9 c)

Test following hypothesis:c) H0: 2=0, 4=0

H1: 20 and/or 40

Exercise 6.9 d)

Test following hypothesis:

d)H0:2=0, 3=0, 4=0

H1: 20 and/or 30 and/or 40

Exercise 6.9 e)

Test following hypothesis:e) H0 : 2+ 3+ 4+ 5=1 H1 : 2+ 3+ 4+ 51

Conclusion

Collectively, all the variables produce a model with a high level of explanation and a good predictive ability. Furthermore, our economic theory tells us that all the variables are important ones in a production function. However, we have not been able to estimate the effects of the individual explanatory variables with any reasonable degree of precision.