Regression model returns to scale and parameters

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Reference no: EM1315979

Your analyst tells you that he has estimated the following linear regression model of your company's long run technology:

Q = 2K + 3L

Where Q is quantity produced, K is the level of capital, and L is the level of labour.

a) What data would the analyst need to collect in order to run the above regression?

b) What has the analyst assumed about the returns to scale of your technology? About the relationship between capital and labour as inputs? (Hint: what is the ratio of marginal productivities of labour and capital?)

c) Suppose that the analyst reformulates his analysis by modeling the technology by the following log-linearm model: Q =α+ β₁ ln k + β₂ where α, β_1,β_{2 > 0}are estimated parameters.

i. What assumptions has the analyst made about your company's technology now?
ii. Given the above estimates f

Reference no: EM1315979

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