Q1. (a) Assume that following true" (Cobb-Douglas) production function is estimated by a researcher using data from 1980 to 2017 InQ = Bo + BInLie + B2 In Lze + B3 In Ke + up where Q = output, L1 = production labor, L2= nonproduction labor, K = capital The results are: Inot = 10 + 0.38Inlit +0.22 In L2+ + 0.42 In K (A) Pr = (0.02) (0.05) (0.01) (0.00) R=0.95 F-Statistics = 215.3 Prob( F-Statistics)=0.00 and apply following LM specification test LM test: = 10.7 +0.014 in Lir-1.37 In L2 +0.28 In K - 000004 (In L1,2 +0.019 (In L2) 2-0.003 (In K)^2 R?=0.05 Answer following questions i. Use results of LM test and discuss specification of model (A) ii. What would be the consequences if researcher use following regression in empirical investigation InQc = Be + B Inlit + B2 In Ke + u {3+5) How will you choose between following non-nested competing models Md = Be + B.Y +V and Md = Qo + aji+U {5} (b) Q1. (a) Assume that following true" (Cobb-Douglas) production function is estimated by a researcher using data from 1980 to 2017 InQ = Bo + BInLie + B2 In Lze + B3 In Ke + up where Q = output, L1 = production labor, L2= nonproduction labor, K = capital The results are: Inot = 10 + 0.38Inlit +0.22 In L2+ + 0.42 In K (A) Pr = (0.02) (0.05) (0.01) (0.00) R=0.95 F-Statistics = 215.3 Prob( F-Statistics)=0.00 and apply following LM specification test LM test: = 10.7 +0.014 in Lir-1.37 In L2 +0.28 In K - 000004 (In L1,2 +0.019 (In L2) 2-0.003 (In K)^2 R?=0.05 Answer following questions i. Use results of LM test and discuss specification of model (A) ii. What would be the consequences if researcher use following regression in empirical investigation InQc = Be + B Inlit + B2 In Ke + u {3+5) How will you choose between following non-nested competing models Md = Be + B.Y +V and Md = Qo + aji+U {5} (b)