solution to quiz2 - Bora Kim(2924798272(Quiz 2 Econ 318...

Info icon This preview shows pages 1–2. Sign up to view the full content.

Bora Kim (2924798272) ( Quiz 2 Econ 318 ) Problem 1 You are interested in the relationship between output (Q), Capital, and Labor. Q = β 0 + β 1 Ln ( Capital ) + β 2 Labor + β 3 Labor 2 + u ˆ Q = - 1 . 5 + 44 . 2 Ln ( Capital ) + 1 . 28 Labor - 0 . 032 Labor 2 (a) How do you interpret parameter of Ln(capital)? (ans) ˆ β 1 = 44 . 2 and ˆ β 1 / 100 = 0 . 442 shows that 1 percent increase in capital increases the output by 0.442 units. (b) At what level of labor does output reach its maximum? Calculate maximum output when capital= 10. (ans) Since ˆ Q ∂Labor = 1 . 28 - 0 . 032 * 2 * Labor = 0 when Labor = 1 . 28 2 · 0 . 032 = 20, the output reaches its maximum when labor level is equal to 20. Maximum output when labor=20 and capital=10 is - 1 . 5 + 55 . 2 * log (10) + 1 . 28 * 20 - 0 . 032 * 20 2 = 113 . 07 . Problem 2 In the following multiple regression model dependent variable, ln ( Inc ) is natural log of income for rickshaw drivers in Calcutta India and the independent variables are age and IQ. The unknown parameters are β s. Ln ( Inc ) = β 0 + β 1 IQ + β 2 age + u, u has a normal distribution OLS, using 32 observations, Dependent variable: Ln(Inc) coefficient std. error const 0.01557 0.36823 IQ 0.08611 0.02376 age 0.09818 0.04181 Sum squared resid=35.5 S.E. of regression=1.1833 R-squared=0.7802 (a) You are interested in constructing a 95% prediction interval (for Ln(Inc)) for a 30 year old rickshaw driver with IQ of 100. Your friend suggests that estimating the following model will provide you with the predicted value: Ln ( Inc ) = θ 0 + β 1 ( IQ - 100) + β 2 ( age - 30) + u. Using the following estimated model, demonstrate that your friend is correct and construct and interpret the interval.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern