You are planning to estimate a short- run production function for your firm, and you have collected the following data on labor usage (L) and output (Q):
Labor usage (L) Output (Q)
a. Please key in the data into MS Excel for regression analysis. Estimate your firm’s short-run production function. Do the parameter estimates have the appropriate algebraic signs? Are they statistically significant at the 5 percent level? (Hint: Run the production function as Q = AL^3 +BL^2)
b. At what point do you estimate marginal product (MP) begins to fall?
c. Calculate estimates of average products (AP) and marginal products (MP) when the firm employs 20 workers.
d. When the firm employs 20 workers, is short-run marginal cost (MC) rising or falling? How can you tell?