Which of the Following Limitations of the Linear Probability Is

question 6

Multiple Choice

Which of the following limitations of the linear probability is not problematic in the event that the only treatment variable in your regression (X or right-hand side) , is a binary variable?

• A) The errors of the model have to be heteroscedastic.
• B) The errors of the model have to be homoscedastic.
• C) The predictions might not fall between zero and 1.
• D) The coefficients might be negative.

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Definitions:

Elastic Demand

A situation where the quantity demanded of a product is highly responsive to changes in its price.

Inelastic Demand

The condition when the quantity demanded of a product changes very little in response to changes in its price.

Profit-Maximizing

The approach by which an enterprise figures out the optimal pricing and production levels for the highest profit return.

Marginal Revenue

The supplementary income resulting from the sale of one more good or service unit.