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1. The City of Oz has available land for only one additional firm to be invited you locate in the city limits. You have been

1. The City of Oz has available land for only one additional firm to be invited you locate in the city limits. You have been hired as an economic consultant to recommend the city to choose between two candidates. You have requested that the city obtain a time series data set from each firm for labor and capital they have utilized annually for as many years as possible. You have been supplied with a data set for Firm 1 which is designated by the variables L1 and K1. For Firm 2, the variables are designated as L2 and K2. a. Set up the econometric model that you will use to supply input to the City of Oz. (10 points) b. Estimate the two models and perform any necessary hypothesis testing to distinguish between the two firms. Fully explain. (20 points) c. Make your recommendations to the city in terms of which firm should be chosen. (10 points) the years are from 1960-2060 Data: obs L1 L2 K1 K2 Y1 Y2 1960 1.009127503 -0.111884165 0.253208117 0.45209935 1961 1.930775172 -0.114141895 -0.060675261 1.792406222 1.0729 1.71376 1962 3.063570675 0.251272187 1.39737346 2.510052122 2.87834 1.38402 1963 4.589198027 1.901064932 1.623601436 1.852657913 4.02704 0.80586 1964 6.620604553 0.967651784 2.327465864 1.994790695 6.08511 0.8808 1965 6.452731124 0.127232644 4.321446952 3.162503139 6.62634 2.6147 1966 8.171191848 1.342860384 4.369529683 3.206118701 6.74496 1.67344 1967 9.664460657 1.832921164 6.548829816 4.590875611 10.18925 4.279 1968 11.21494598 4.210900087 6.046155954 5.26834437 11.26599 5.84509 1969 10.05293752 5.926293963 7.477671879 7.441505769 9.19796 8.75605 1970 10.5362062 6.259835506 9.171475562 7.630229201 9.47997 8.49153 1971 10.53262615 7.319576955 9.646031523 7.445570728 8.36865 9.8885 1972 11.90569143 6.604880397 9.602607524 7.681257714 11.3978 8.70258 1973 11.16670102 6.867813217 9.996054081 7.712331644 10.21059 10.35937 1974 12.11637877 5.99268028 8.840720267 8.874952136 10.33203 8.10499 1975 13.66837278 4.903658165 10.61016182 9.124635335 13.26228 9.47482 1976 13.38891809 5.598192595 11.46171676 10.03843662 12.19564 9.66717 1977 15.65734487 6.047362786 9.673288186 10.32341849 14.18489 9.46426 1978 14.00932298 5.022505207 10.28174731 10.86068984 12.3119 9.40698 1979 13.75362109 6.136889652 11.10722679 11.09386877 12.53862 9.41365 1980 14.56007848 4.26657929 10.81390326 11.59074533 13.34743 10.51624 1981 16.08034395 4.493148005 11.65569777 13.26052996 14.58251 10.21777 1982 15.51618561 5.945017156 12.04475225 15.00501982 14.74208 12.96586 1983 16.28465658 7.334516322 14.36838239 16.18868887 17.3876 13.5218 1984 19.24479184 8.967311042 17.47958561 15.46150279 17.43764 14.1063 1985 19.68357821 8.683912808 17.74382229 14.36323051 18.33718 14.71005 1986 21.63154246 8.829009587 19.83536775 15.11913569 20.48636 12.79496 1987 21.13040246 10.84092049 20.05587442 13.74995025 22.3318 15.65742 1988 21.77978983 9.857640641 20.71159471 13.89311194 21.76826 14.39459 1989 23.92219744 10.4789129 21.26174715 15.60715933 23.22639 13.68123 1990 23.98788259 11.72630095 22.27646922 16.61497904 22.63211 16.16607 1991 23.41044191 9.961525078 22.91207272 17.8714107 24.58024 15.80856 1992 23.36765336 7.766900359 24.6213189 19.5374918 25.55193 16.31733 1993 26.01929097 7.86338401 25.67687556 19.46332602 27.22082 14.48809 1994 26.60494028 8.151832699 24.89156264 20.81107161 28.49802 16.27608 1995 27.98176785 7.427678399 26.88690492 21.79299371 27.80968 18.15009 1996 25.91745742 6.527308874 27.86568431 21.68815686 25.51078 14.88214 1997 26.77732898 6.394207305 28.51351208 21.50256594 28.71497 16.02906 1998 27.61999001 5.533144164 27.87102227 23.98941892 29.56003 15.90742 1999 27.93196387 6.169237517 28.11511498 23.83660122 28.35272 15.75641 2000 28.8177741 5.033483383 27.21222066 24.34046039 28.64031 16.68383 2001 30.21475914 5.199800091 27.56516173 23.41733474 31.53878 15.21246 2002 32.1653554 6.102088636 27.92981615 22.49935806 30.43172 16.81882 2003 31.88971324 6.162175478 29.04517659 22.86295329 30.72468 17.63908 2004 31.54955368 7.861305515 31.81804344 23.37141281 31.78343 15.44679 2005 31.14607935 7.754245903 32.99919931 23.44564324 34.10777 17.30233 2006 32.52252839 8.469639944 34.09571553 25.11025233 32.89541 18.71185 2007 33.65119986 8.65874807 37.04048427 24.53029218 34.55626 17.93135 2008 34.13894314 9.476264593 37.9431173 24.90867484 36.44996 18.70947 2009 33.90335508 11.90960973 39.33112305 25.80483572 35.24278 19.84786 2010 35.25502485 12.07229894 40.2052357 28.52095634 36.8551 21.32246 2011 37.23162888 12.54649903 39.8004451 29.39216273 37.93018 22.37089 2012 37.21087266 13.77244116 39.46744456 29.32494661 39.13454 24.10619 2013 38.21026253 15.08648287 41.00090373 29.39899642 38.84588 27.31017 2014 39.49238685 14.76209124 42.61323211 29.24618481 41.2304 25.12304 2015 40.52451953 15.65627993 43.68783931 28.38442377 40.06908 25.58167 2016 40.71542812 16.509444 44.65144818 28.37970705 40.30749 25.88827 2017 41.67031561 17.44970944 46.67635047 29.24349701 43.74068 27.22129 2018 41.66363124 19.06557793 46.08327121 31.60690597 42.53494 26.9587 2019 43.44222094 19.52004187 46.1762382 34.03857676 45.20736 32.50424 2020 42.03861924 19.93219776 47.88364502 37.07620204 46.30574 31.26896 2021 40.58374166 20.90168845 48.4515526 38.01743794 42.96356 33.09083 2022 42.82016602 23.20746868 49.05602729 38.62608997 45.1401 36.9517 2023 42.28023811 23.80511184 49.92400224 39.2807787 44.06941 36.09975 2024 43.14774922 25.29814839 50.41381504 40.64232496 45.04477 38.34064 2025 43.75452894 25.34089482 51.97575148 41.49000504 45.74082 40.5593 2026 43.84108986 25.53003841 52.99585383 42.0827084 46.12233 40.44035 2027 45.56248044 26.37122067 53.23405224 41.99914966 46.44455 39.78038 2028 46.69847989 27.38023779 53.2459227 42.52915518 49.1518 39.92534 2029 47.29127924 27.24098717 53.80932406 42.67428656 50.02338 40.71477 2030 48.5816134 27.21991814 53.8357445 44.83745333 50.67053 42.50316 2031 48.21989963 28.44333627 53.39294643 43.77174647 49.25503 43.87564 2032 47.77632369 29.54061282 54.31399178 45.11770342 49.88755 42.63128 2033 48.49624437 30.74753308 55.81761371 44.96466533 50.76258 44.43436 2034 49.5140185 30.59347611 55.96768796 45.84416551 50.58722 44.87658 2035 51.39200423 31.22904797 55.97685031 46.82364128 52.45752 46.91923 2036 50.15424012 32.31574878 57.52292229 47.32220511 51.21251 47.80771 2037 51.0518111 31.91906453 57.00306458 47.37207099 54.23739 47.52366 2038 52.48257399 33.66823839 59.06778904 47.01990214 54.62278 48.24658 2039 54.39406748 32.03154104 59.98669688 46.77703777 55.41814 46.99882 2040 55.24697178 32.87637863 62.0241867 47.65078836 57.35005 47.52114 2041 55.7671303 33.47832426 62.13111942 47.32687591 58.29539 46.71004 2042 55.9167404 34.55610289 63.29321208 46.70396143 58.1854 47.12402 2043 57.12051638 35.03875537 65.02760725 44.61771061 60.3095 47.38093 2044 58.81976648 36.40617758 67.01046599 46.40288829 60.80959 50.37934 2045 60.04252124 36.75725335 67.49201787 46.12629113 62.82095 50.30306 2046 62.26298181 37.93117464 69.20915552 47.44839523 63.03429 50.56776 2047 62.90878009 38.87013821 68.85546686 44.82164532 65.60092 50.0981 2048 63.87147778 40.72424395 70.69265629 45.83191299 68.28669 51.79782 2049 64.28903353 41.921196 70.52567336 45.33818418 65.25378 52.47328 2050 65.19092079 42.38853609 70.62294732 45.6590114 68.85893 53.7522 2051 65.63554942 42.89376593 73.25042367 45.79833172 67.60756 52.91666 2052 66.73669085 42.75373436 74.7886838 46.19932803 70.82169 52.21006 2053 66.19845047 43.35991755 74.7988334 47.1094368 68.00106 52.98812 2054 67.42655123 43.11350697 75.26615754 47.27669815 70.26991 55.00025 2055 67.96614923 43.09022033 75.50715498 46.73417252 71.04564 53.89052 2056 70.3717952 43.95708603 75.01718759 47.22391014 71.26266 54.99574 2057 69.52446144 44.41892077 75.13001094 47.49681029 70.98034 54.8455 2058 69.65256646 45.00958382 76.29808998 49.29358407 72.21969 56.38617 2059 71.27546802 46.28704808 76.75982838 48.79978949 71.50566 57.96343

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