Q.2. We have access to the following data on power-producing firms: Var No Variable Name Comments Order Observation number (1-245). Cost in millions of dollars 1 2 Costs 3 KWH Output in billions of kilowatt hours 4 PL Price of labor 5 PF Price of fuel 6 PK Price of capital Suppose the "true" cost model is: In C* Bo + By Iny + B1 In pi + B, In p + error where, In C – In p3 In C* In pi Inpi – In p3 In p In p2 – In p3 In stands for natural log, C is the cost P1, P2, P3 are the three input prices, and y is the output. If you used Ordinary Least Squares to estimate the cost model In C* = Bo + By In y + B, In pi + error, will your estimates of the coefficients be biased on unbiased? Explain in words.
Q.2. We have access to the following data on power-producing firms: Var No Variable Name Comments Order Observation number (1-245). Cost in millions of dollars 1 2 Costs 3 KWH Output in billions of kilowatt hours 4 PL Price of labor 5 PF Price of fuel 6 PK Price of capital Suppose the "true" cost model is: In C* Bo + By Iny + B1 In pi + B, In p + error where, In C – In p3 In C* In pi Inpi – In p3 In p In p2 – In p3 In stands for natural log, C is the cost P1, P2, P3 are the three input prices, and y is the output. If you used Ordinary Least Squares to estimate the cost model In C* = Bo + By In y + B, In pi + error, will your estimates of the coefficients be biased on unbiased? Explain in words.
A First Course in Probability (10th Edition)
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Chapter1: Combinatorial Analysis
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Transcribed Image Text:Q.2. We have access to the following data on power-producing firms:
Var No
Variable Name
Comments
1
Order
Observation number (1-245).
2
Costs
Cost in millions of dollars
KWH
Output in billions of kilowatt hours
4
PL
Price of labor
5
PF
Price of fuel
6.
PK
Price of capital
Suppose the "true" cost model is:
In C*
Bo + By In y + Bị In pi + ß2 In p + error where,
In C – In p3
In C*
In pi
In p
In pi – In p3
In p2 – In p3
In stands for natural log,
C is the cost
P1, P2, P3 are the three input prices, and
y is the output.
you used Ordinary Least Squares to estimate the cost model ln C* = Bo + By In y +
B, In pi + error, will your estimates of the coefficients be biased on unbiased? Explain
If
in words.
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