uPDATED-Urban Economics - Needed in 1 hour- JUST 1 questions
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ps5_fall_copy.docxUrban Economics
Problem Set #5
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Question 1
Assume you run regression where you explain vineyard land profits as a function of temperature, rainfall and a time trend. The table below reports the results of two different models. The dependent variable is the natural logarithm of profits.
|
|
Equation 1 Ln(profit) |
Equation 2 Ln(profit) |
|
Temperature (in degree Celsius) |
0.402 (6.62) |
0.302 (6.99) |
|
(Temperature)2 (in degree Celsius) |
-0.009 (4.09) |
|
|
Rainfall Harvest (in milliliters) |
-0.435 (-2.99) |
-0.455 (-3.04) |
|
Trend |
0.021 (6.66) |
0.022 (6.36) |
|
|
|
|
|
R2 |
0.88 |
0.86 |
a) Which of the two equations do you prefer? Why?
b) Refer to Equation 1 and calculate the profit maximizing temperature. Show your
work.
