Please solve all the sub questions a, b, c, d, e, f and g with calculations.

Estimating cost and production functions for industrial plants is important. Decisions are based on estimated average and marginal cost, and average and marginal products. Suppose a manufacturing plant for a particular firm has output modeled as Qi=0+1MGTEFFi+2CAPi+3LABi+ui where Q is the output in a particular manufacturing plant, MGT_EFF is a managerial efficiency index, CAP is capital stock input index and LAB is labor input index. a. What is the interpretation of 1 ? What sign should it have? b. Measuring MGT_EFF is difficult. Suppose we propose to estimate the model 1 Qi=0+1XPER+2CAPi+3LABi+ui where XPER is the plant manager's experience, measured in years. What should the sign of 1 be now? Why might we worry that XPER is endogenous? [Hint: think about the various threats to internal validity that we reviewed and which one of them may have an impact here] c. We use data from 75 plants to estimate the model in (b). The least squares estimates are (robust std errors in parenthesis) Q=1.7623+0.1468XPER+0.4380CAP+0.2392LAB(se)(1.0550)(0.0634)(0.1176)(0.0998) Are the signs of the coefficients and their significance consistent with your expectations? Explain. d. If XPER is endogenous, what is the direction of the bias of the OLS estimator? Explain. [Hint: Remember your answer to part (b).] e. Suppose we consider AGE, the age of the plant manager, as an instrument. Does it satisfy the criteria for an IV based on your economic reasoning? Why or why not? f. In the OLS regression of XPER on CAP, LAB, and AGE, the t-value for the coefficient of AGE is 3.13. What information does this provide us about the feasibility of carrying out IV/2SLS? g. The two-stage least squares estimates are Q=2.4867+0.5121XPER+0.3321CAP+0.2400LAB(se)(2.7230)(0.2205) What are the differences in these estimates versus the OLS estimates? Are the differences consistent with your expectations, relative to the OLS estimates? Explain. h. Reasoning that AGE is an adequate IV, a staff economist decides to add AGE LAB and AGE CAP as instruments also. The economist regresses XPER on CAP, LAB, AGE, AGE LAB, and AGEXCAP. The F-test of the joint significance of AGE, AGE LAB, and AGE CAP is 3.3. Do you think it is advisable to use the interaction variables as IV in the estimation? Justify your