10 - increases by 1 Fahrenheit degree. This estimate does...

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Chapter 2, Exercise Solutions, Principles of Econometrics, 3e 10 EXERCISE 2.6 (a) The intercept estimate 1 240 b =− is an estimate of the number of sodas sold when the temperature is 0 degrees Fahrenheit. A common problem when interpreting the estimated intercept is that we often do not have any data points near 0. X = If we have no observations in the region where temperature is 0, then the estimated relationship may not be a good approximation to reality in that region. Clearly, it is impossible to sell 240 sodas and so this estimate should not be accepted as a sensible one. The slope estimate 2 6 b = is an estimate of the increase in sodas sold when temperature
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Unformatted text preview: increases by 1 Fahrenheit degree. This estimate does make sense. One would expect the number of sodas sold to increase as temperature increases. (b) If temperature is 80 degrees, the predicted number of sodas sold is ˆ 240 6 80 240 y = − + × = (c) If no sodas are sold, 0, y = and 240 6 x = − + × or 40 x = Thus, she predicts no sodas will be sold below 40 ° F. (d) A graph of the estimated regression line: -300-200-100 100 200 300 20 40 60 80 TEMP SODAS Figure xr2.6 Graph of regression line for soda sales and temperature...
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