earn identical profit profit mktsize error

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Unformatted text preview: = α + β MKTSIZE • Equation of straight line of straight line • α: intercept • β: slope Slide 36 12 Step #1 Formulate Model • • • • If 2 teams or stores in same size market. . . Earn identical profit? PROFIT = α + β MKTSIZE + ε ε : error term, accounts for uncontrolled differences between elements, or “unobserved heterogeneity heterogeneity” Slide 37 Step #1 Formulate Model • Population PROFIT = α + β MKTSIZE + ε • If have data on all units of observation are studying • α & β are known • α & β are parameters parameters • Sample • If have data on part of population • α & β unknown • Will estimate them • “Best guesses” PROFIT = a + b MKTSIZE + e Slide 38 Step #2: Gather Data • Need numbers = data • Time series data – Measurements at different points in time – Annual profit of NY Giants over 30 years • Cross-sectional data Cross– Measurements at same time – Annual profit of each NFL team last year • Panel data – Combine both above – Annual p...
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