2.docx
2.docx
2.docx
Roll No.:21026765006
Group A
Practical
Aim: To estimate the Cobb–Douglas Production function for the given data.
Problem :
Consider the given set of data and analyse it using the the Cobb –Douglas production
function.
Y L K
16607.7 275.5 17803.7
17511.3 274.4 18096.8
20171.2 269.7 18271.8
20932.9 267 19167.3
20406 267.8 19647.6
20831.6 275 20803.5
24806.3 283 22076.6
26465.8 300.7 23445.2
27403 307.5 24939
28628.7 303.7 26713.7
29904.5 304.7 29957.8
27508.2 298.6 31575.9
29035.5 295.5 33474.5
29281.5 299 34821.8
31535.8 288.1 41794.3
Theory:
In econometrics ,the Cobb–Douglas production function is a particular functional form of
the production function widely used to represent the technological relationship between the
amounts of two or more inputs (particularly physical capital and labor) and the amount of output
that can be produced by those inputs.
In its most standard form for production of a single good with two factors, the function is
𝑌 = 𝐴𝐿𝛽 𝐾 𝛼 − −(1)
where:
• Y = total production (the real value of all goods produced in a year or 365.25 days)
• L =Labor input (person-hours worked in a year or 365.25 days)
• K = capital input (a measure of all machinery, equipment, and buildings; the value of
capital input divided by the price of capital)[
• A = Total Factor Productivity
• α and β are the output elasticities of capital and labor, respectively. These values are
constants determined by available technology.
• Taking logarithm of (1) we get
• LN(Y)=LN(A)+β*LN(L)+α*LN(K)
• Or Y1=A1+β*L1+α*K1
• Value of parameter A is obtained using A=antilog(A1).
Steps:
(1):Log transformation of variables :
• Transform→ Compute Variable→Target Variable:logY→Numerical Expression:LN(Y) →OK
• Transform→ Compute Variable→Target Variable:logL→Numerical Expression:LN(L) →OK
• Transform→ Compute Variable→Target Variable:logK→Numerical Expression:LN(K) →OK
(2)Applying Linear Regression
Analyze→Regression→Linear→Dependent :log Y →Independent:Log L and LogK→OK
Output:
Table 1
Case Summariesa
Y L K logY logL logK
1 16607.70 275.50 17803.70 9.72 5.62 9.79
2 17511.30 274.40 18096.80 9.77 5.61 9.80
3 20171.20 269.70 18271.80 9.91 5.60 9.81
4 20932.90 267.00 19167.30 9.95 5.59 9.86
5 20406.00 267.80 19647.60 9.92 5.59 9.89
6 20831.60 275.00 20803.50 9.94 5.62 9.94
7 24806.30 283.00 22076.60 10.12 5.65 10.00
8 26465.80 300.70 23445.20 10.18 5.71 10.06
9 27403.00 307.50 24939.00 10.22 5.73 10.12
10 28628.70 303.70 26713.70 10.26 5.72 10.19
11 29904.50 304.70 29957.80 10.31 5.72 10.31
12 27508.20 298.60 31575.90 10.22 5.70 10.36
13 29035.50 295.50 33474.50 10.28 5.69 10.42
14 29281.50 299.00 34821.80 10.28 5.70 10.46
15 31535.80 288.10 41794.30 10.36 5.66 10.64
Total N 15 15 15 15 15 15
a. Limited to first 100 cases.
Table 2
Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
1 .943a .889 .871 .07480
a. Predictors: (Constant), logK, logL
Table 3
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression .538 2 .269 48.083 .000b
Residual .067 12 .006
Total .605 14
a. Dependent Variable: logY
b. Predictors: (Constant), logK, logL
Table 4
Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -3.339 2.449 -1.363 .198
logL 1.499 .540 .373 2.777 .017
logK .490 .102 .644 4.801 .000
a. Dependent Variable: logY
Calculation:
A=antilog(-3.339)
A=0.035472
Result:
A=0.035472
β=1.499
α=0.49
Estimate of Cobb–Douglas Production function for the given data is:
𝑌 = (0.035472)𝐿1.499 𝐾 0.49