Why Do You Use Only Some of the Variation of Your

question 6

Multiple Choice

Why do you use only some of the variation of your treatment variable (the component predicted in the first stage) when using an instrumental variable approach?

• A) To get smaller standard errors.
• B) To avoid the heteroscedasticity problem.
• C) To have the estimate of the treatment effect be based only on variation that is exogenous variation to the other factors affecting the outcome.
• D) To have the estimate of the treatment effect be based only on variation of the treatment that is correlated with the outcome.

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Definitions:

Direct Materials

Materials that can be directly linked to the manufacturing of particular products or services.

Units Sold

The total quantity of products or services sold within a specific period, often used to measure business performance.

Direct Labor

The labor costs directly tied to the production of goods or the provision of services.

Variable Costs

Expenses that vary directly with the production output or activity levels.