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Unformatted text preview: P=20-2Q Suppose we have 4 observations on price and quantity: Obs. # Quantity Price e e*e 1 3 11-3 9 2 6 11 3 9 3 5 6-4 16 4 10 4 4 16 Average 6 8 50 A. Least squares principle: Find slope and intercept to minimize sum B. Residual = of the true slopes. for each of the four observations. 17.65385 8.826923 2.971014 RSS 38 ESS TSS 20.34615 0.535425 1- 0.464575 . What does it mean? 0.303145-0.39371 Ordinary least squares for a simple regression of squared residuals. Why? C. Residual Sum of Squares ( RSS )= D. Using calculus and solving, we get These numbers give the OLS or least squares estimates E. Now, calculate F. Now, calculate the residuals for the four observations. G. Add the residuals up. What do you get? H. Calculate the standard error of the regression : SER= I. Now calculate the Total Sum of Squares: TSS= J. Now calculate the Explained Sum of Squares: ESS = K. Now calculate R 2 : since ESS+RSS=TSS. What does it mean?...
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This note was uploaded on 11/20/2011 for the course ECON 420 taught by Professor Silous during the Spring '11 term at Emory.
- Spring '11