Build a computer program that creates a data set of prices and quantities using (4.4) for given values z and y. Use this program to create a data set of size T, the ‘‘true data set,'' and then to construct a simulated data set of size S. Next construct the objective function for the indirect inference case as suggested in section 4.3.3. What happens when you set ∝z to zero?
Use the stochastic cake-eating problem to simulate some data. Construct the likelihood of the sample and plot it against different possible values for P .