Answered: Consider the Cobb- Douglas production…

Linear Algebra: A Modern Introduction

4th Edition

ISBN:9781285463247

Author:David Poole

Publisher:David Poole

Chapter4: Eigenvalues And Eigenvectors

Section4.6: Applications And The Perron-frobenius Theorem

Problem 17EQ

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Consider the Cobb- Douglas production function, Q = aK^bL^c ; b and c

a) Can be estimated using OLS on the equation Q = a +bK+cL

b) Can be calculated from the covariances of K and L with Q

c) cannot be estimated using OLS

d) can be estimated using OLS on the equation log(Q) =log(a) +b log(K) +b log(L)

Definition Definition Measure of how two random variables change together. Covariance indicates the joint variability or the directional relationship between two variables. When two variables change in the same direction (i.e., if they either increase or decrease together), they have a positive covariance. When the change is in opposite directions (i.e., if one increases and the other decreases), the two variables have a a negative covariance.

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