Suppose the fitted (assumed causal) regression line for your data is as follows: Log(Output) = 6.2 + 0.4 × Log(Labor) + 0.5 × Log(Capital)
Interpret the coefficient on Log(Labor).
A) Holding capital fixed, when labor goes up by 1, output goes up by 0.4
B) Holding capital fixed, when labor goes up by 1, output goes up by 6.6
C) Holding capital fixed, when labor goes up by 1%, output goes up by 0.4%
D) Holding capital fixed, when labor goes up by 1%, output goes up by 40 units

Question

Quizplus · Accepted Answer

The coefficient on Log(Labor) in a log-log regression model represents the elasticity of the dependent variable with respect to the independent variable. Therefore, a 1% increase in labor, holding capital constant, leads to a 0.4% increase in output.

Suppose the Fitted (Assumed Causal) Regression Line for Your Data