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ARE106SU09MT2

# ARE106SU09MT2 - Name Last 4 digits of your Student ID...

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Name:___________________ Last 4 digits of your Student ID Number:__________ Managerial Economics (ARE) 106 University of California, Davis, Summer Session II, 2009 Dr. John H. Constantine Midterm 2, Thursday, August 27, 2009 70 TOTAL POINTS For all problems, assume α = 5%.

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1 Problem 1 (20 points) : See the associated SHAZAM output. A life insurance company wants to examine the relationship between the amount of life insurance held by a family and family income. Data were collected from a random sample of 20 households on family income ( x ) and the amount of life insurance the family has ( y ); all data are in thousands of dollars. (a) State the estimated sample regression function equation as given on the SHAZAM printout. (3 points) (b) Using the estimated numeric values, provide economic interpretations for both b 1 and b 2 . (7 points) (c) One member of management claims that for every \$1,000 increase in income, the amount of life insurance will increase by \$5,000. State your hypothesis test (both H 0 and H A ) and whether you reject or do not reject your stated hypothesis, that is, whether you accept or not accept the manager’s claim. Use the confidence interval approach . (10 points)
2 Problem 2 (15 points) : See the associated SHAZAM output. You wish to estimate the relationship between beginning salary ( y ) and years of education ( x ). You estimate the following model: t t t e x y + β + β = 2 1 ) ln( (a) What is the numeric value for b 2 ? Interpret this result. (10 points) (b) What is the r 2 for this model? (5 points)

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