Question: Consider the following aggregate production function for the U.S. manufacturing sector: Y aKb2Lb3Eb4Mb5 expfeg where Y is gross output, K is capital, L is

Consider the following aggregate production function for the U.S. manufacturing sector:

Y ¼ aKb2Lb3Eb4Mb5 expfeg where Y is gross output, K is capital, L is labor, E is energy, and M denotes other intermediate materials. The data underlying these variables are given in index form in the file manuf.dat.

(a) Show that taking logarithms of the production function puts it in a form suitable for least squares estimation.

(b) Estimate the unknown parameters of the production function and find the corresponding standard errors.

(c) Discuss the economic and statistical implications of these results.

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