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The two conditions for instrument validity are corr(Zi,Xi)≠ 0 and corr(Zi,ui)= 0.The reason for the inconsistency of OLS is that corr(Xi,ui)≠ 0.But if X and Z are correlated,and X and u are also correlated,then how can Z and u not be correlated? Explain.
Average Total Cost
The per unit cost of production, calculated by dividing the sum of all production costs by the quantity of output produced.
Workers
Individuals engaged in physical or mental activity in order to achieve a result, often employed for wages.
Units
The standard measurement or quantity in which a product, service, or statistic is counted or expressed.
Marginal Cost
The cost of producing one additional unit of a good or service.
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