Quiz 2: Econometrics Max Marks: 3

Dr. Javed Iqbal

Q-1:

(Figures in parenthesis are standard errors)

a) Elasticity of output with respect to capital is 0.7 against a two sided alternative.
b) Elasticities of labor and capital are equal i.e. 2 3 β =β
c) There are constant returns to scale.
Q-2: Let the cost of a gas generation plants is specified as the following model (1)

(1)
C=αY β P1λ P λ2 e u
1 2

Where C= Cost, Y=Output of Gas P1= Labor price P2= Capital Price u = error term
a) Find the linear model to be estimable by Least Square
b) Theory specifies that 1 2λ + λ =1
. Find the restricted version of the linear model
c) State how you can test this restriction.

Tables and Formula

^
β−β (RSS R −RSS UR )/ q ( β^ i± β^ j )−( β i±β j )
t= F= t=
se( β^ ) RSSUR /( n−k−1 ) SE ( β^ ± β^ )
i j

SE ( β^ i ± β^ j )= √V ( β^ i )+V ( β^ j )±2 Cov( β^ i , β^ j )

Quiz 2: Econometrics Max Marks: 3
Dr. Javed Iqbal
Q-1:

(Figures in parenthesis are standard errors)

a) Elasticity of output with respect to capital is 0.65 against a two sided alternative.
b) Elasticities of labor and capital are equal i.e.
β 2=β 3
c) There are constant returns to scale.
Q-2:

a) Find the linear model to be estimable by Least Square

b) For the TPF to reduce the Cobb-Douglas production function, what should be the values of
β 4 and β 5 ?
c) State how you can test this restriction.
Tables and Formula
^
β−β (RSS R −RSS UR )/ q ( β^ i± β^ j )−( β i±β j )
t= F= t=
se( β^ ) RSSUR /( n−k−1 ) SE ( β^ ± β^ )
i j

SE ( β^ i ± β^ j )= √V ( β^ i )+V ( β^ j )±2 Cov( β^ i , β^ j )