Question

Consider the following production function for US manufacturing sector lnY=β 1 +β 2 lnK+β 3 lnL+u where Y= an index of output K= an index of capital L= an index of labour The regression result is Model 1:ln Y se =−0.001+0.241lnK+1.061lnL=(0.038)(0.151)(0.240)R 2 =0.9401,ESS=1.339,RSS=0.085,n=25What is the underlying form of production function for Model 1?

Answer 1

The underlying form of the production function for Model 1 is lnY = β1 + β2lnK + β3lnL + u.

Step-by-step explanation:

The underlying form of the production function for Model 1 can be represented as:

lnY = β1 + β2lnK + β3lnL + u

This indicates that the natural logarithm of output (lnY) is a function of the natural logarithm of capital (lnK) and the natural logarithm of labor (lnL), along with an error term (u). The coefficients β1, β2, and β3 represent the effects of capital and labor on output.