Dr. TU Thuy Anh Faculty of International Economics 1 EXTENDED FORMS OF REGRESSION MODELS COBB-DOUGLAS FUNCTIONS 2 • Production function: Y = aKαL β => lnY = a1+αln(K)+ βln(L) => lnY = a1+αln(K)+ βln(L) + u • Example: • Interpretation: – α: when K increases by 1%, L unchanged then Y increases by α%; the elasticity – β: when L increases by 1%, K unchanged then Y increases by α% – a1 : when K=L =1=> Y=exp(a1 ) POLINOMIAL FUNCTION 3 Cost function: TC = a1+a2Q? TC = a1+a2Q+a3 Q2 ? TC = a1+a2Q+a3 Q2 +a4Q3 ? TC = a1+a2Q+a3 Q2 +a4Q3+u

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