THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION

question 189

Multiple Choice

THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION:
In examining the determinants of income,data were collected regarding the characteristics of 45 adults,and the regression lnY = β₀ + β₁ lnX₁ + β₂ lnX₂ + β₃X₃ + ε was used,where Y is the annual income (in thousands of dollars) ,X₁ is the adult's age,X₂ is his/her years of education,and X₃ is a dummy
variable = 1 and is used if the adult is female.You run the regression and obtain the equation
ln
= 6.3 + 0.91 lnx₁ + 1.3 ln x₂ - 0.05x₃.
-How would you interpret the coefficient on years of education?

• A)For every addition in his/her years of education,we would expect the income to increase on average by $1,310,assuming that all the other independent variables in the model are held constant.
• B)For every one percent increase in his/her years of education,we would expect the income to increase on average by 1.3 percent,assuming that all the other independent variables in the model are held constant.
• C)For every 1.3 percent increase in his/her years of education,we would expect the income to increase approximately by $1,000,assuming that all the other independent variables in the model are held constant.
• D)For every one percent increase in his/her years of education,we would expect the income to increase approximately by $1,310,assuming that all the other independent variables in the model are held constant.

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Definitions:

Marginal Revenue

The additional income generated from selling one more unit of a product or service.

Lump Sum

A significant amount of money paid all at once, as opposed to smaller payments or installments over time.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent or salaries.

Average Total Costs

The total expenses incurred in the process of producing or offering a good or service, divided by the quantity of goods or services produced or offered.