ECONOMICS ASSIGNMENT

ANALYSIS OF COBB-DOUGLAS PRODUCTION FUNCTION

FOR AUTO SECTOR

GUIDED BY : Professor Manish Sinha

SUBMITTED BY:
Pulkit Gupta (2011D26)
Rohan Dhakad (2011D30)
Ashish Sharma (2011D37)

Summary of Regression Analysis

The Sector chosen for regression analysis is Auto sector.
The companies used in data analysis are:
1)
2)
3)
4)

Tata Motors
Maruti Suzuki India ltd.
M&M Ltd.
Hindustan Motors

Output after regression:

Regression
Statistics
Multiple R
R Square
Adjusted R
Square
Standard Error
Observations

0.916364347
0.839723616
0.830009896
0.53529796
36

ANOVA
df
Regression
Residual
Total

Intercept
Ln(L)
Ln(K)

SS
MS
F
2 49.54181884 24.77091 86.44717
33 9.455948883 0.286544
35 58.99776772

Coefficients
2.606158919

Standard
Error
t Stat
0.49079952 5.310027

P-value
7.39E-06

-0.085920354 0.195378382 -0.43976 0.662975

0.889977015 0.148122299 6.008393 9.41E-07

Significance
F
7.59185E-14

Upper
Lower 95%
95%
Lower 95.0% Upper 95.0%
1.607619792 3.604698 1.607619792 3.604698046
0.483420658
0.31158 -0.48342066 0.31157995
0.588619933 1.1913341 0.588619933 1.191334096

In the assignment, we have studied the COBB DOUGLAS production function by taking real data of Data of Cost of Goods Sold (COGS), Salary (L), and
Fixed Assets of four Auto companies over the span of the last 10 years. The figures have been corrected for deflation as per the below table 1.2
The companies comprise of Tata Motors, Maruti Suzuki India Ltd, M&M Ltd, and Hindustan Motors.
By applying Regression to the above data, we found out the following equation for the production function
Ln (output) = 2.606158919 - 0.085920354*ln(labor) +0.889977015*ln(capital)
We also observe that the sum of the coefficients of Labor and Capital is 0.804.
From which we infer that the industry has decreasing returns to scale.
The reasons might be due to recession & increased salaries.
We also observe the R square value is 0.84 which is very high.

Appendix
Data of Cost of Goods Sold (COGS), Salary (L), Fixed Assets, Deflated Values for Companies (Table 1.1)

COMPANY
Tata Motors_2010
Tata Motors_2009
Tata Motors_2008
Tata Motors_2007
Tata Motors_2006
Tata Motors_2005
Tata Motors_2004
Tata Motors_2003
Tata Motors_2002
Maruti_2010
Maruti_2009
Maruti_2008
Maruti_2007
Maruti_2006
Maruti_2005
Maruti_2004
Maruti_2003
Maruti_2002
M&M_2010
M&M_2009
M&M_2008
M&M_2007
M&M_2006
M&M_2005
M&M_2004
M&M_2003
M&M_2002
HindustanMotors_2010
HindustanMotors_2009
HindustanMotors_2008
HindustanMotors_2007
HindustanMotors_2006
HindustanMotors_2005
HindustanMotors_2004
HindustanMotors_2003
HindustanMotors_2002

COGS (Q)
35743
25512
18801
20891
19880
14633
12545
8778
6000
29080
22836
15983
13958
10863
9423
8650
7038
5666
20036.3
15499.3
11796.5
10152.3
8785.1
7265.0
5815.4
4415.1
3408.3
769.4
670.7
682.8
728.4
691.5
475.4
1086.2
737.1
833.7

SALARY (L)
2294
1836
1551
1545
1368
1143
1039
882
720
704
546
471
356
288
229
196
178
214
369.9
381.2
417.4
464.2
551.7
666.1
853.6
1024.5
1199.8
83.2
72.2
75.9
86.1
69.1
51.2
136.2
109.5
112.7

Fixed Assets
(K)
17476
16436
14599
10452
6395
4521
3697
3248
3307
5529
5025
4071
3297
2660
1695
1874
1831
2256
1172.3
1398.2
1318.8
1326.6
1335.6
1528.5
1698.4
2315.2
2316.7
127.8
131.0
145.1
154.3
173.7
186.1
191.4
318.8
348.1

COGS
(Q)
23679.3
18516.5
13967.1
16867.2
16833.9
13136.7
11642.0
8442.4
5999.7
19264.9
16574.4
11873.5
11269.6
9198.7
8459.8
8027.4
6768.6
5665.5
13273.6
11249.3
8763.3
8196.7
7439.2
6522.1
5396.7
4246.3
3408.3
509.7
486.8
507.2
588.1
585.6
426.8
1008.0
708.9
833.7

Deflated Values
SALARY
(L)
Fixed Assets (K) ln(Q)
ln(L)
ln(K)
1519.7
11577.2
10.07
7.33
9.36
1332.7
11929.2
9.83
7.19
9.39
1152.5
10845.5
9.54
7.05
9.29
1247.1
8438.9
9.73
7.13
9.04
1158.3
5414.9
9.73
7.05
8.60
1026.2
4058.9
9.48
6.93
8.31
964.5
3430.4
9.36
6.87
8.14
848.7
3123.6
9.04
6.74
8.05
720.4
3306.6
8.70
6.58
8.10
466.1
3663.1
9.87
6.14
8.21
396.0
3646.9
9.72
5.98
8.20
350.0
3024.1
9.38
5.86
8.01
287.6
2661.5
9.33
5.66
7.89
244.2
2252.2
9.13
5.50
7.72
205.3
1521.9
9.04
5.32
7.33
181.9
1738.8
8.99
5.20
7.46
171.1
1760.8
8.82
5.14
7.47
213.6
2255.7
8.64
5.36
7.72
245.1
776.6
9.49
5.50
6.65
276.7
1014.8
9.33
5.62
6.92
310.1
979.7
9.08
5.74
6.89
374.8
1071.1
9.01
5.93
6.98
467.2
1131.0
8.91
6.15
7.03
598.0
1372.2
8.78
6.39
7.22
792.1
1576.1
8.59
6.67
7.36
985.3
2226.7
8.35
6.89
7.71
1199.8
2316.7
8.13
7.09
7.75
55.1
84.7
6.23
4.01
4.44
52.4
95.1
6.19
3.96
4.55
56.4
107.8
6.23
4.03
4.68
69.5
124.6
6.38
4.24
4.82
58.5
147.1
6.37
4.07
4.99
46.0
167.1
6.06
3.83
5.12
126.4
177.6
6.92
4.84
5.18
105.3
306.6
6.56
4.66
5.73
112.7
348.1
6.73
4.72
5.85

The WPI Index across various years. (Table 1.2)

Calendar
Year
2010
2009
2008
2007
2006
2005
2004
2003
2002

140.08
127.86
124.92
114.94
109.59
103.37
100
96.49
92.8

WPI Index
140.08
127.86
124.92
114.94
109.59
103.37
100
96.49
92.8

140.08
127.86
124.92
114.94
109.59
103.37
100
96.49
92.8