Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 6

Using the data in RDCHEM.RAW, the following equation was obtained by OLS:

(i) At what point does the marginal effect of sales on rdintens become negative?

(ii) Would you keep the quadratic term in the model? Explain.

(iii) Define salesbil as sales measured in billions of dollars: salesbil _ sales/1,000. Rewrite the estimated equation with salesbil and salesbil2 as the independent variables. Be sure to report standard errors and the R-squared.

(iv) For the purpose of reporting the results, which equation do you prefer?

Step 1 of 4

(i)

The equation is given by:

The marginal effect ofon is given by:

For the marginal effect to be negative,

holds

This implies,

Hence, atthe marginal effect ofonbecome negative