Three Predictor Variables Are Being Considered for Use in a Linear

question 12

Essay

Three predictor variables are being considered for use in a linear regression model. Given the correlation matrix below, does it appear that multicollinearity could be a problem?
$$\begin{array} { | l | c c c | } \hline & \boldsymbol { x } _ { 1 } & \boldsymbol { x } _ { \mathbf { 1 } } & \boldsymbol { x } _ { \mathbf { 3 } } \\\hline \boldsymbol { x } _ { 1 } & 1.000 & & \\\boldsymbol { x } _ { \mathbf { 2 } } & 0.025 & 1.000 & \\\boldsymbol { x } _ { \mathbf { 3 } } & 0.968 & 0.897 & 1.000 \\\hline\end{array}$$

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Definitions:

Mutually-Agreeable Trade

A transaction or trade that both parties involved consent to and believe will benefit them.

Opportunity Cost

The expense incurred by not selecting the second-best option when deciding among various choices.

Willingness to Pay

The maximum amount an individual is prepared to expend on a good or service to procure it.

Producer Surplus

The difference between the amount producers are willing to sell a good for and the amount they actually receive.