Economics 312

Spring 2010
Econometric Project #2: Scale Economies in Production

Due 6am, Tuesday, February 23: Berndt Chapter 3, Exercises 4, 5, and 6

Berndt's Chapter 3 examines a set of issues related to firms' production technologies: Do firms' costs go down when they "learn by doing"? Do larger firms have lower costs than smaller firms, indicating the presence of economies of scale (at least at low production levels)?

The exercises that you are to do for this assignment all relate to scale economies rather than learning curves. You should begin by reading Chapter 3, though you may skip sections 3.2 and 3.4 because they pertain to the learning curve models that you won't need. Section 3.1 and 3.3 contain some mathematical formulations from micro theory that will probably be familiar to those who have taken 313 and ugly-intimidating to those who have not. Don't worry too much about the details of the math; we'll spend a little class time talking about the parts that you need for the assignment.

There are two datasets for this project, one called NERLOV and the other called UPDATE. To add something basic to your Stata toobox, these are in Excel format. The easiest way to get them into Stata is simply to copy and paste the cells from Excel to the Stata data spreadsheet. You will need to download nerlov.xls and update.xls to your computer, open them in Excel, select the cells containing data (including the variable names in the top row), and use the copy command to put them on the clipboard. Then open Stata and click the edit button on the toolbar to open the (empty) data spreadsheet. Select the Paste command from the Edit menu and, when asked, tell Stata whether the top row is variable names or data. The data should now be in Stata and you can save the dataset as a Stata data file after you close the spreadsheet window.

Most of the econometrics in this assignment involves farily straightforward applications of multiple regression. However, there may be a few little tricks here and there that require a new Stata command. There is also a fair amount of interpretation in this assignment. I strongly encourage you to get an early start so that you have time after doing the basic econometric estimation to analyze them and develop your interpretations.

Project Teams

Project teams for the first assignment are below. You should make contact with your partner as soon as possible to arrange a work schedule.