1
University of California, Davis
Managerial Economic(ARE) 106, Summer 2009
Instructor: John H. Constantine
KEY
—Problem Set #2: Due MONDAY, August 17, 2009
Problem 1
(A table is provided at the end of the assignment to calculate the numbers)
:
The following data give the daily price (x, ($/unit)) and consumption (y) of some commodity Z; the data
were collected at nine shops in Davis that sell Z for a one week period.
The objective is to estimate the
demand for Z.
Obs
x
y
1
5
10
2
3
15
3
15
8
4
9
12
5
14
6
6
4
18
7
3
22
8
6
14
9
8
11
(a)
Plot the data.
(b)
The PRF for this model is:
y
i
=
β
1
+
β
2
x
i
+ e
i
.
Use the method of least-squares to estimate (by hand) the sample regression function.
You must
provide numeric estimates for the following variables:
(i)
β
1
(ii)
β
2
(iii)
σ
2
(iv)
var(
β
2
)
(v)
s.e.(
β
2
)
(c)
State the SRF for the given sample above.
Plug in the parameter estimates from part (b) into this
equation
.
y
∧
= 19.61 – 0.90
x
.

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