When Dealing with Categorical Variables in the Context of a Multivariate

question 3

Multiple Choice

When dealing with categorical variables in the context of a multivariate regression, we:

• A) Include the categorical variable directly into the model and interpret the results
• B) Change the categorical variable into a dummy variable (per category) and include all of the dummy variables in the regression.
• C) Change the categorical variable into a dummy variable (per category) and include all but one of the dummy variables in the regression.
• D) Interact the categorical variable with a continuous variable.

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Definitions:

MC

Marginal Cost, the cost of producing one additional unit of a product or service.

ATC

Average Total Cost; the total cost of production divided by the number of units produced, representing the per-unit production cost.

Average Fixed Costs

Costs that do not vary with the level of output and are averaged over the total number of units produced.

Marginal Costs

The expense associated with manufacturing an extra unit of a product or service.