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(Output) Obs Q L K

1. The Cobb-Douglas production function was estimated assuming zero intercept. Labor (L) has an elasticity of 0.820444 and capital (K) has an elasticity of 0.362678. 2. To minimize costs given an output of 100, costs w of 10, and r of 20, the cost-minimizing levels of K and L can be calculated by taking the ratio of the factor costs to the factor elasticities. 3. The cost function can be estimated from the production function by specifying a cost-minimizing behavior given input prices and the estimated production function. This allows calculating the minimum total cost of producing a given level of output.

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69 views7 pages

(Output) Obs Q L K

1. The Cobb-Douglas production function was estimated assuming zero intercept. Labor (L) has an elasticity of 0.820444 and capital (K) has an elasticity of 0.362678. 2. To minimize costs given an output of 100, costs w of 10, and r of 20, the cost-minimizing levels of K and L can be calculated by taking the ratio of the factor costs to the factor elasticities. 3. The cost function can be estimated from the production function by specifying a cost-minimizing behavior given input prices and the estimated production function. This allows calculating the minimum total cost of producing a given level of output.

Uploaded by

Hồ Phi Phụng
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Table A.

1: Linear Production Function Data for


A Regression Approach to Estimating
Production Function Parameters

Observation Value Added Labor Capital


Number (Output) Input Input
Obs Q L K
1 657.29 162.31 279.99
2 935.93 214.43 542.5
3 1110.65 186.44 721.51
4 1200.89 245.83 1167.68
5 1052.68 211.4 811.77
6 3406.02 690.61 4558.02
7 2427.89 452.79 3069.91
8 4257.46 714.2 5585.01
9 1625.19 320.54 1618.75
10 1272.05 253.17 1562.08
11 1004.45 236.44 662.04
12 598.87 140.73 875.37
13 853.1 145.04 1696.98
14 1165.63 240.27 1078.79
15 1917.55 536.73 2109.34
16 9849.17 1564.83 13989.55
17 1088.27 214.62 884.24
18 8095.63 1083.1 9119.7
19 3175.39 521.74 5686.99
20 1653.38 304.85 1701.06
21 5159.31 835.69 5206.36
22 3378.4 284 3288.72
23 592.85 150.77 357.32
24 1601.98 259.91 2031.93
25 2065.85 497.6 2492.98
26 2293.87 275.2 1711.74
27 745.67 137 768.59

Averages 2340.200741 402.9719 2725.145


Question 1: Estimate the linear production function (assuming the intercept is
zero).
Hint: Check Constant is Zero when running the regression.
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.97132
R Square 0.943463
Adjusted R 0.938751
Standard E 0.188374
Observatio 27

ANOVA
df SS MS F Significance F
Regression 2 14.21156 7.105781 200.2489 1.07E-15
Residual 24 0.851634 0.035485
Total 26 15.0632

Coefficients
Standard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%
Upper 95.0%
Intercept 1.170644 0.326782 3.582339 0.001502 0.496199 1.845089 0.496199 1.845089
ln(L) 0.602999 0.125954 4.787457 7.13E-05 0.343043 0.862955 0.343043 0.862955
ln(K) 0.37571 0.085346 4.402204 0.00019 0.199565 0.551856 0.199565 0.551856
Table A.2: Natural Logarithm Production
Function Data for A Regression Approach to
Estimating
Production Function Parameters

Natural Natural Natural


Observation Logarithm of Logarithm Logarithm
Number Value Added of Labor of Capital
(Output) Input Input
Obs ln(Q) ln(L) ln(K)
1 6.488125321 5.089508 5.634754
2 6.841540687 5.367983 6.296188
3 7.012700709 5.228109 6.581346
4 7.090818228 5.50464 7.062774
5 6.959094572 5.353752 6.699217
6 8.133299733 6.537575 8.424644
7 7.794777846 6.115428 8.029404
8 8.356428017 6.571163 8.627842
9 7.393380011 5.770007 7.38941
10 7.148385051 5.534061 7.353774
11 6.912195407 5.465694 6.495326
12 6.395044546 4.946843 6.774647
13 6.748876774 4.97701 7.436605
14 7.061016992 5.481763 6.983595
15 7.558803609 6.285495 7.65413
16 9.195142467 7.355532 9.546066
17 6.992344558 5.368869 6.784729
18 8.999079689 6.987583 9.118192
19 8.063185738 6.257169 8.645936
20 7.410576956 5.71982 7.439007
21 8.548558129 6.728258 8.557636
22 8.125157504 5.648974 8.098254
23 6.384941416 5.015755 5.878632
24 7.378995643 5.560335 7.616741
25 7.633297043 6.209797 7.821234
26 7.737995627 5.617498 7.445266
27 6.614283143 4.919981 6.644558

Averages 7.443631312 5.763652 7.445922


Question 2: Estimate the Cobb-Douglas production function (assuming the intercept is zero).
Hint: Check Constant is Zero when running the regression.
Question 3: If Q=100, w=10, r=20 then what are the cost-minimizing K and L for the above Cobb-
Douglas production function?
Question 4: Discuss the method to estimate the cost function from the production function(s) (given
the costs of inputs are constant)
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.999567
R Square 0.999135
Adjusted R 0.9591
Standard E 0.228649
Observatio 27

ANOVA
df SS MS F Significance F
Regression 2 1509.76265259192 754.88132629596 14439.037343468 1.0749461E-37
Residual 25 1.30701463736682 0.0522805854947
Total 27 1511.06966722929

Coefficients Standard Error t Stat P-value Lower 95%


Intercept 0 #N/A #N/A #N/A #N/A
X Variable 0.820444 0.13395942374548 6.1245724680225 2.109633837E-06 0.5445496008
X Variable 0.362678 0.103499299820428 3.5041547450369 0.0017471924645 0.14951676441
Upper 95%Lower 95.0%
Upper 95.0%
#N/A #N/A #N/A
1.096339 0.54455 1.096339
0.575838 0.149517 0.575838

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