What are the values given in brackets ? Compare above two regression functions t-stat values and R2’s to indicate which regression function is better than the other to be used to decide future milk demand. Will the adjusted R2 seem to decrease or increase after the exclusion of C from the regression function ? Why ?
Correlation
Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.
Linear Correlation
A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.
Regression Analysis
Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
Demand for milk production in US is given by the following regression function. Qd = 10.21 + 3.73 Pd + 1.32 C + 3.67 Y R2=0.87 (7.4) (1.17) (0.02) (2.47) Where Pd denotes the price for milk per liter, C denotes the cost of production of milk and Y denotes the average income level. When C is omitted from the regression equation; Qd = 23.12 + 0.34 Pd- 2.73 Y R2=0.73 (7.3) (3.23) (-5.25) What are the values given in brackets ? Compare above two regression
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