THE PRODUCTION FUNCTION FOR WILSON COMPANY
Economists at the Wilson Company are interested in developing a production function for fertilizer plants. They collected data on 15 different plants that produce fertilizer (see the following table).
1. Estimate the Cobb -Douglas production function Q = aL 13, 103 2, where Q = output; L = labor input; K = capital input; and a, l3, and 152 are the parameters to be estimated.
2. Test whether the coefficients of capital and labor are statistically significant.
3. Determine the percentage of the variation in output that is “explained” by the regression equation.
4. Determine the labor and capital estimated parameters, and give an economic interpretation of each value.
5. Determine whether this production function exhibits increasing, decreasing, 0R constant returns to scale. (Ignore the issue of statistical significance.)