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Consider the following Cobb-Douglas production function Y; = AKP¹ Le (where Y is output, A is the level of technology, K is the capital stock, L is the labor force and u is the error term) Using data on (Yi, Ki, Li) for i = 1,..., n firms (where n is a large number) explain how you would test for constant returns to scale. Write down the regression you would run (how would you interpret the coefficients in this regression?) and the null hypothesis for constant returns to scale. Form the t-statistic for your test and show how you would get the numerator and the denominator for this t statistic. When would you reject the null of constant returns to scale at the 5% significance level?

Consider the following Cobb-Douglas production function Y; = AKP¹ Le (where Y is output, A is the level of technology, K is the capital stock, L is the labor force and u is the error term) Using data on (Yi, Ki, Li) for i = 1,..., n firms (where n is a large number) explain how you would test for constant returns to scale. Write down the regression you would run (how would you interpret the coefficients in this regression?) and the null hypothesis for constant returns to scale. Form the t-statistic for your test and show how you would get the numerator and the denominator for this t statistic. When would you reject the null of constant returns to scale at the 5% significance level?

MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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Consider the following Cobb-Douglas production function Y₁ = AK? Le (where Y is output, A is the level of technology, K is the capital stock, L is the labor force and u is the error term) Using data on (Y₁, K₁, L₁) for i = 1,..., n firms (where n is a large number) explain how you would test for constant returns to scale. Write down the regression you would run (how would you interpret the coefficients in this regression?) and the null hypothesis for constant returns to scale. Form the t-statistic for your test and show how you would get the numerator and the denominator for this t statistic. When would you reject the null of constant returns to scale at the 5% significance level?
Transcribed Image Text:Consider the following Cobb-Douglas production function Y₁ = AK? Le (where Y is output, A is the level of technology, K is the capital stock, L is the labor force and u is the error term) Using data on (Y₁, K₁, L₁) for i = 1,..., n firms (where n is a large number) explain how you would test for constant returns to scale. Write down the regression you would run (how would you interpret the coefficients in this regression?) and the null hypothesis for constant returns to scale. Form the t-statistic for your test and show how you would get the numerator and the denominator for this t statistic. When would you reject the null of constant returns to scale at the 5% significance level?
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