Q1. 1. (b) Define the general form of the simultaneous equations model. Based on the (b) likelihood function, explain the problem of identification. When is an equation called just identified, under-identified or over-identified? Also, give the order condition for identification. 15
(a) 1. (a) If the cost function is of the form C = C0 + ∑ ti √(ni), where C0 and ti are known numbers, then in order to minimize V(\baryst) for fixed total cost, show that ni must be proportional to (Wi2 Si2)/(ti))2/3
(b)
1.
(c) Show that the demand curve with constant price elasticity of demand is a hyperbola whose shape depends on the value of the parameter. Hence, show that when the elasticity of demand is 1, then the demand curve is an equilateral hyperbola.
