# Regression

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(Y (sub (i)))= B (sub 0) + B(sub 1) X(sub i) + B(sub 2) D(sub2i) + B(sub 3) D(sub 3i) + u(sub i)

where:

Y= annual earnings of MBA graduates

X= years of service

D(sub 2)= 1 if Harvard MBA

=0 otherwise

D(sub3)= 1 Wharton MBA

= 0 otherwise

a. What are the expected signs of the various coefficients?why?

b. How would you interpret B(sub 2) and B(sub 3)? why?

c. If B(sub 2) > B(sub3), what conclusion would you draw and why?

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The solution answers the question(s) below.

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a. What are the expected signs of the various coefficients? why?

This is an OLS regression with dummy variables.

Bo is the intercept, which means the earning for a MBA graduate with no service experience and not coming from Harvard or Wharton. Since MBA graduates like this can certainly make money, the value of Bo should be positive.

B1 is the coefficient of years of service. Since we would expect higher earnings for those with longer ...

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