Q4. Imagine that you have estimated the following cost model for your firm: Depe

Question

Q4. Imagine that you have estimated the following cost model for your firm: Dependent variable: Truck production Lny-? + ? w In wages + ?' In taxes + ßR In Re n1+ ? cin CPI + ? M 1n materials Lry = ?-0.15W?0.0023 T_ 0.0 14R-0.0052 CPI-0.0010 M (0.0033) (0.0013) (0.0027) (0.0040) (0.0033) Observations: 101 R-Squared 0.60 Adj. R-squared: 0.58 F-Stat: 28.53 (Standard errors in parenthesis) (a) Are wages and taxes significant? Why? (2 Points) (b) Comment on the joint-hypothesis test? (2 Points) (c) What does the R-Squared mean? (3 Points) (d) Explain the impact of taxes and cost of materials on production (3 Points)

Explanation / Answer

a) Test statsitic of taxes is t = -0.0023 / 0.0013 = -1.76923
t critical value =+/- 1.9853
Here t value is lies between t critical value so we accept H0
Thus we conclude that taxes are not significant

Test statsitic of Wages is t = -0.15/0.0033 = -45.4545
t critical value =+/- 1.9853
Here t value is not lies between t critical value so we do not accept H0
Thus we conclude that wages are significant

b)
F = 28.53
F critical vlaue = 2.4675
Here F vaue > F critical vlaue so we reject H0
Thus we conclude that jointly hypothesis is significant
i.e. the model is best fit to the given data

c) R-Square = 0.58 = 58 percentage of variation in the truck production is explained by the joint effect of independent variables

d)
As taxes increase 1 point then truck production will be decrease 0.0023
As cost of material increase $1 then truck production will be decrease 0.0010

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