Question: In a recent study Dr Notrick considers the following production function models: (1) LnY = a + ajLnK + aLnL + U1 (2) Ln(Y/K)=

In a recent study Dr Notrick considers the following production function models:

In a recent study Dr Notrick considers the following production function models: (1) LnY = a + ajLnK + aLnL + U1 (2) Ln(Y/K)= co + ci(LnL/LnK) + 143 (3) LnY/LnK = bo + b(1/LnK,) + b(LnL/LnK;) + uz (4) ALnY,=dALnK; + d ALnLt+U+4 where Y = output, K = Capital, L = labour and A is the difference operator. a) What is the hypothesis maintained in going from equation (1) to equation (2)? Does Dr Notrick worry about heteroscedasticity/autocorrelation in formulating equation (2). How do you know? b) What is the hypothesis maintained in going from equation (1) to equation (3)? Does Dr Notrick worry about heteroscedasticity/autocorrelation in formulating equation (3). How do you know? c) What is the hypothesis maintained in going from equation (1) to equation (4)? Does Dr Notrick worry about heteroscedasticity/autocorrelation in formulating equation (4). How do you know? d) Can you relate the intercepts and slopes of equations (1) and (3)? How?

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