The general expression is Y, - BxXfe\" ,where Y-the output for the medical cente

Question

The general expression is Y, - BxXfe" ,where Y-the output for the medical center lhe general expression is y = as measured in patients treated, X -labor input as measured in the number of labor hours and X, -capital input as measured in the amount of equipment and machinery Answer the following questions: 1. Before you run the regression, take the natural logs of both sides of the equation....what do you get? 2. Using the data supplied in the excel file entitled productiondata_chap3_healthcare_econ, perform a regression to estimate this relationship (make sure to estimate this regression in natural log... .you did a version of this in the elasticity regression from an earlier chapter). 3. What is the nature of the returns to scale (refer to the text for guidance)? 4. Produce a mini-report, about 1-2 paragraphs, for the CEO of the medical center. Report on such things as 1) the interpretation of the slope coefficients b, and b and what they mean for the medical center's output, 2) the nature of the returns to scale that you found and its practical implications, 3) an intuitive lesson on the general usefulness of this analysis for the medical center.

Explanation / Answer

Answer to question# 1)

We need to take log of both the sides of the equation

We get:

Log Y = Log (1 * X2^2 * X2^3 *E^u)

Log Y = Log 1 + Log X2^2 + Log X3^3 + LogE^u

Log Y = Log 1 + 2Log X2 + 3Log X3 + uLogE

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