4. The model below explains CEO salary (salary) expressed in thousands of pounds as a function of a firm's sales in million pounds (sales), the return on a firm's equity (roe), and the industry in which the firm isoperating. There are two industries in the sample, services and consumer goods. These industries arecaptured respectively by two dummy variables, service and goods.The regression based on a sample of 209 firms is as follows:= 4.5 + 0.27sales + 0.015roe - 0.08service(0.24) (0.03) (0.05) (0. 05)L1090 Introduction to EconometricsR-squared = 0.35SSR(Residual Sum of Squares) = 42.9a. Interpret the coefficient of service.b. In the regression model, the consumer goods as an industry is omitted from the model. Explainthe implications of adding the binary variable goods to the regression model.

Regression model: Salary = 4.5+0.27sales+0.015roe-0.08service

a. Interpret the coefficient of service. b. In the regression model, the consumer goods as an industry is omitted from the model. Explain the implications of adding the binary variable goods to the regression model.

a. Interpret the coefficient of service. b. In the regression model, the consumer goods as an industry is omitted from the model. Explain the implications of adding the binary variable goods to the regression model.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter4: Estimating Demand

Section: Chapter Questions

Problem 8E

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