Consider the Following Cobb-Douglas Production Function Yi = AK

question 35

Essay

Consider the following Cobb-Douglas production function Yi = AK L (where Y is output,A is the level of technology,K is the capital stock,and L is the labor force),which has been linearized here (by using logarithms)to look as follows:
yi = + β1ki + β2li + ui
Assuming that the errors are heteroskedastic,you want to test for constant returns to scale.Using a t-statistic and "Approach #2," how would you proceed.

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