Consider the following Cobb-Douglas production function for the bus transportation system in a city: Q = Lβ1F β2B β3 Where L = labour input in worker hours F = fuel input in gallons B = capital input in number of buses Q = output measured in millions of bus miles Suppose that the parameters (α, β1, β2 and β3) of this model were estimated using annual data for the past 25 years. The following results were obtained: β1 = 0.45, β2 = 0.20 and β3 = 0.30 A. What type of returns to scale appears to characterise the transportation system (ignore the issue of statistical significance)?
Consider the following Cobb-Douglas production
Q = Lβ1F
β2B
β3
Where L = labour input in worker hours
F = fuel input in gallons
B = capital input in number of buses
Q = output measured in millions of bus miles
Suppose that the parameters (α, β1, β2 and β3) of this model were estimated using annual
data for the past 25 years. The following results were obtained:
β1 = 0.45, β2 = 0.20 and β3 = 0.30
A. What type of returns to scale appears to characterise the transportation system (ignore the
issue of statistical significance)?
B. Discuss some of the methodological and measurement problems one might encounter in
using time-series data to estimate the parameters of this model.
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