Economists often examine the relationship between the inputs o f a production function and the resulting o u tpu t. A com m on w ay of modeling this relationship is referred to as the Cobb-Douglas production function. This function can be expressed as ln(Q) = β₀ + β₁ In(L) + β₂ ln(K ) + ε. where Q stands for output, L for labor, and K for capital. The follow in g table lists a portion of data relating to the U.S. agricultural industry in the year 2004; the complete data, labeled Production Function, are available on the text website.

Estimate in (Q) = β₀ + β₁ in (L) + β₂ In (K) + ε.

a. What is the predicted change in output if labor increases by 1 % , holding capital constant?

b. Hold in g capital constant, can we conclude at the 5 % level that a 1% increase in labor will increase the output by more than 0.5%?