If one is trying to explain the cross-sectional variation in prices for milk across grocery stores in the country using commercial rental prices and a binary variable for if the grocery store chain owns a dairy farm, which method is most appropriate?
A) Multiple regression
B) Simple regression
C) Two stage least squares
D) Probit

Question

Quizplus · Accepted Answer

Multiple regression would be the most appropriate method as it allows for the inclusion of multiple independent variables (in this case, commercial rental prices and binary variable for dairy farm ownership) to explain the dependent variable (milk prices). Simple regression would only allow for the inclusion of one independent variable, while two-stage least squares and probit are typically used for more complex models involving endogeneity and binary outcomes, respectively.

If One Is Trying to Explain the Cross-Sectional Variation in Prices