1 / 8

AEB 6184 – Direct Estimation of Cost Functions

AEB 6184 – Direct Estimation of Cost Functions. Elluminate 11. Formulation of the Cobb-Douglas Cost Function. Starting with the basic Cobb-Douglas production function formulation Forming the Lagrangian. Solving for x 1 in terms of x 2

edith
Download Presentation

AEB 6184 – Direct Estimation of Cost Functions

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. AEB 6184 – Direct Estimation of Cost Functions Elluminate 11

  2. Formulation of the Cobb-Douglas Cost Function • Starting with the basic Cobb-Douglas production function formulation • Forming the Lagrangian

  3. Solving for x1 in terms of x2 • Substituting this result into the production function and solving for x2

  4. Input demands and cost function

  5. Estimation • Defining a two equation system • Next, we construct an error matrix with 45 rows and 2 columns

  6. Maximum likelihood estimation is then • The variance matrix for the estimates is given by the Hessian matrix at the optimal value by the Cramer-Rao lower bound.

  7. Estimation using the KLEM dataset

  8. Exercise • Extend the Cobb-Douglas function two four inputs and refit the KLEM data. • Implement the same estimation for the Constant Elasticity of Substitution function.

More Related