1.Suppose the production Function of Adama metal sheet company is estimated as follows:

= boL^b1_K^b2_E^b3

Where

Q = output

L = labor input in worker hours

K = capital input in machine hours

E = energy input in

Each of the parameters of this model was estimated by regression analysis

using monthly data over a recent 3-year period. Coefficient estimation

results were as follows:

b0 = 0.9; b1 = 0.4; b2 = 0.4; b3 = 0.2

The standard error estimates for each coefficient are

b0 = 0.6; b1 = 0.1; b2 = 0.2; b3 = 0.1

a.Estimate the effect on output of a 1% decline in worker hours (holding K and E constant).

Solution: -

b.Estimate the effect on output of a 5% reduction in machine hours availability accompanied by a 5% decline in energy input (holding L constant).

Solution: -

c.Estimate the returns to scale for this production system

Solution: -