One of the Limitations of the Linear Probability Model Is

question 32

Multiple Choice

One of the limitations of the linear probability model is that it:

• A) is difficult to interpret the resulting coefficient estimates.
• B) suffers from multicollinearity.
• C) may generate predictions that fall outside of the range of the outcome variable.
• D) may lead to homoscedastic errors.

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Definitions:

Marginal Cost

The supplementary cost involved in creating one more unit of a product or service.

Monopoly

A monopoly is a market structure characterized by a single seller controlling a large portion of the market, lacking significant competition, and often able to influence prices.

Natural Monopoly

A market structure where a single firm can produce the entire market's supply at a lower cost than could multiple firms due to economies of scale.

Economies of Scale

Economies of scale refer to the cost advantage experienced by a firm when it increases its level of output. The advantage arises due to the inverse relationship between per-unit fixed cost and the quantity produced.