Consider the Following to Answer the Question(s) Below

question 24

Essay

Consider the following to answer the question(s) below:
To determine whether the cash bonuses paid by Johnson Financial Group are related to annual pay, data were gathered for 10 account executives who received such bonuses in 2007. The data, scatterplot and summary statistics are shown below.
Note: In answers to problems 2, 4, and 5 we will be using regression equation coefficients received by computer software. If we apply textbook formulae, the value of intercept will be a little bit different.
-Using the regression equation,
a. Estimate the cash bonus for an executive at Johnson Financial earning $200,000 a year.
b. How confident should you be in this estimate? Explain.

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Definitions:

Socially Optimal

A state or condition in which resources are allocated in the most efficient manner from a societal perspective, maximizing benefits and minimizing costs to the society as a whole.

External Benefits

Positive effects of a transaction that affect third parties not directly involved in the transaction.

External Costs

Costs that are not borne by the parties involved in an economic transaction but are imposed on other individuals or society at large, such as pollution or congestion.

Coase Theorem

A principle suggesting that if transaction costs are low, private bargains will efficiently resolve the allocation of resources and distribution of goods.