41 - Chapter 3, Exercise Solutions, Principles of...

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Chapter 3, Exercise Solutions, Principles of Econometrics, 3e 41 EXERCISE 3.6 (a) A 95% interval estimator for β 2 is b 2 ± (0.975,14) t × se( b 2 ). Using our sample of data the corresponding interval estimate is 0.3857 ± 2.145 × 0.03601 = ( 0.4629, 0.3085) If we used the interval estimator in repeated samples, then 95% of interval estimates like the above one would contain β 2 . Thus, β 2 is likely to lie in the range given by the above interval. (b) We set up the hypotheses H 0 : β 2 = 0 versus H 1 : β 2 < 0. The alternative β 2 < 0 is chosen because we would expect the unit costs of production to decline as cumulative production
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