Question2
Three hypotheses have been advanced to explain price formation:
 A. The theory of marginal cost pricing which asserts that changes in prices (△p) are due to changes in unit labor costs (△ULC), changes in unit material costs (△UMC), changes in the ratio of unfilled orders to sales (△(O/S) and the level of capacity utilization (CU).
B. The theory of target return pricing in which price changes are due to changes in standard or normal unit labor costs (△ULC^N), changes in standard unit material costs (△UMC^N), changes in the standard capital- output ratio (△(K/Q)) and changes in target rates of retum (△π).
 C. The theory of full cost pricing which explains price changes by △ULC^Nand △UMC^N
only.
The following equations were estimated by OLS for manufacturing industries in a country during 1980s:

The figures in parentheses are t statistics.