Microeconomics
Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 19, Problem 1QP
To determine

Explain the significance of judging theories based on prediction rather than the way its sounds.

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Explanation of Solution

Predictions are a stepping stone of believing or not believing a theory because sometimes people want to believe some theories over others, as the theory seems to confirm what people already believe. In real life, before 1960s, people had no idea about wireless mobile phones until its invention. Therefore, people believed that the landline mobile phones is the final invention. However, a scientist predicts with the evidence of technological changes that people will use wireless mobile phones in the future. Since people accept theory because the evidence of the prediction seems to confirm the beliefs of the individuals. Therefore, prediction has more importance than a theory sounds good to people.  

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Please answer questions D-H, I have already answered A , B,C but it may help you to still solve them yourself. Thank you!
2. A firm’s production function is given by:Q = 10KLThe unit capital and labour costs are 2 and 1 pounds respectively. The firm is contracted to produce2000 units.(a) Write out the optimisation problem of the firm. (b) Express this problem using a Lagrangian function. (c) Find values of K and L which fulfil the contract with minimal cost to the firm. (d) Calculate the total cost to the firm.
3. Consider the following estimated regression equation, estimated using a sample of firms, where RDis total firm spending on research and development in USD ($), Revenue is total firm revenuein USD ($), and W ages is the firms’ total spending on wages in USD ($) (standard errors inparentheses):RDd = 1000(600)+ 0.5(0.1)Revenue + 1.5(0.5)W ages,(a) Interpret the coefficients on each of the explanatory variables. (b) Which of the three coefficients are statistically significant at the 5% level of significance? Howdo you know? A researcher runs a two-sided statistical test of the null hypothesis that both the coefficients onthe explanatory variables above are jointly equal to 0.25 (mathematically, that β1 = β2 = 0.25),and reports a p-value of 0.045.(c) What does this p-value mean for the outcome of the test? (d) What would an appropriate two-sided alternative hypothesis look like?
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