Question: Consider the following Cobb-Douglas production function as Q = a L Ke If we take the natural logarithm in (1), we get In Q

Consider the following Cobb-Douglas production function as Q = a L Ke

Consider the following Cobb-Douglas production function as Q = a L Ke If we take the natural logarithm in (1), we get In Q = ln(a) + 3 ln L; + y ln K; +e; and now we want to test the CRS (Constant Returns to Scale) Ho: 8+1 Constant Returns to Scale. (1) (a) Set up the restricted regression and specify the dependent and independent variables. How many unknown parameters to estimate do you have in the restricted model? (b) Assume that the following results Restricted Model: TSS= 100 R = 0.94 Unrestricted Model: TSS 100 RSS = 5, where RSS is the residual sum of square and the number of observations is 210, i.e., n = 210. Test the null hypothesis given above.

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