Question: Consider a product market with a supply function QB + B,P,u. a demand function Q You, and a market equilibrium condition QQ. where u and

Consider a product market with a supply function QB + B,P,u. a demand function Q You, and a market equilibrium condition QQ. where u and if are mutually independent i.i.d. random variables, both with a mean of zero.

a. Show that P, and u are correlated.

b. Show that the OLS estimator of B, is inconsistent.

c. How would you estimate B, B, and y?

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