Consider the following Cobb-Douglas production function for bus service in a typical metropolitan area:

Q = output in millions of passenger miles,
L = labor input in worker hours,
K = capital input in bus transit hours, and
F = fuel input in gallons.
Each of the parameters of this model was estimated by regression analysis using monthly data over a recent three-year period. Results obtained were as follows:
 = 1.2;  = 0.28;  = 0.63; and  = 0.12
The standard error estimates for each coefficient are:
 = 0.4;  = 0.15;  = 0.12;  = 0.07
A. Estimate the effect on output of a 4 percent decline in worker hours (holding K and F constant).
B. Estimate the effect on output of a 3 percent reduction in fuel availability accompanied by a 4 percent decline in bus transit hours (holding L constant).
C. Estimate the returns to scale for this productionsystem.

  • CreatedFebruary 13, 2015
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