Derive the 90% confidence interval of B1+ B2 in the model log Y = B0+ B1 log X1+ B2 log X2+u under the assumptions of CNLR. You may think of this model as a Cobb-Douglas production function where Y;X1;X2 are output, labor, and capital, respectively, and the slopes are the elasticities of output with respect to labor and capital while their sum is the returns to scale. Discuss whether Mean Independence is a good assumption in this model. Discuss the other assumptions as well assuming you observe a sample of the largest companies in different sectors.

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The confidence interval is B1 B2 tse of B1 B2 where t is the appropriate tvalue for a twosided confi... View the full answer