1.Suppose you have data on N firms,and for each firm data are available atemployee level.Consider the following model at the employee level,for j=1,..,ni,andi=1,..,N,yi,j Bo +Bixi,j +ui,j,(1)where wi;f:+vi;and n;is the number of employees working at firm i.Theunobservable variable f is the“firm effect"to each employee j at a given firm i.The error term vi,;is specific to employee j at firm i and is independent of fi,forany i and j.Assume that Var(fi)=oj,Var(vij)=o and that.forj≠l,thev;,;and vi,e are uncorrelated.The data are assumed to be independent acrossfirms.Derive the weighted least square estimator (WLSE)for model (1)using dataaveraged at the firm level.Assume for simplicity that o and o are known.To simplify the calculation,assume that Bo 0.Consider the weight in theWLSE;what is the difference between big and small firm (in term of numberof employees)?[40%]Please explain and comment on your derivations step by step.The deriva-tions should explicitly shows the logical reasoning behind your solution.List thepremises and/or the assumptions you are using,where necessary.