(Answered) Consider the following true cobb-douglas production

Economics

Consider the following "true" (Cobb-Douglas) production function:

ln Yi = α0 + α1 ln L1i + α2 ln L2i + α3 ln Ki + ui

where Y = output

L1 = production labor

L2 = nonproduction labor

K = capital

But suppose the regression actually used in empirical investigation is

ln Yi = β0 + β1 ln L1i + β2 ln Ki + ui
On the assumption that you have cross-sectional data on the relevant variables,

a. Will E(βˆ1 ) = α1 and E(βˆ2 ) = α3 ?

b. Will the answer in a hold if it is known that L2 is an irrelevant input in the production function? Show the necessary derivations.

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Microeconomics, Economics

Category:- Microeconomics
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