Construction of an explanatory model, Managerial Economics

Assignment Help:

Q. Construction of an explanatory model?

Construction of a sample:  To apply multiple regression a large sample is generally essential (ideally between 2,000 to 15,000 individuals).

Note that for time series data, much less is required.

Data collection: Reliable data should be collected, either from a monitoring system or from a questionnaire survey or from a combination of both.

Calculation of coefficients:  Coefficients can be calculated comparatively easily, by using statistical software which is both accessible and affordable to PC users.

Test of the model:  The model aims to explain as much of the variability of observed changes as possible. To check how useful a linear regression equation is, tests can be performed on the square of correlation coefficient r. This tells us what percentage of variability in the y variable can be explained by the x variable. A correlation coefficient of 0.9 would demonstrate that 81% of the variability in Y is captured by variables X1-k used in the equation. The part which remains unexplained represents the residue (ε). So the smaller the residue better is the quality of model and its adjustment. Analysis of residues is a very significant step: it's at this stage that one sees the degree to that the model has been adapted to phenomena one wants to explain. It is residue analysis which also enables one to tell whether the tool has made it possible to estimate effects in a reasonable way or not. If significant anomalies are detected, regression model must not be used to estimate effects and original causal model must be re-examined, to see if further predictive variables can be introduced.


Related Discussions:- Construction of an explanatory model

Concept of economies of scale, Q. Concept of economies of scale? Econom...

Q. Concept of economies of scale? Economies of scale refers to the cost advantages that a business attains because of expansion. 'Economies of scale' is a long run concept and

#Profit as a business Objective, Write on one theory of profit. Profit as r...

Write on one theory of profit. Profit as rent of ability: one of the most widely known theories of profit was propounded by F.A. Walker. According to him profit is the rent of is t

Weapons of conflict, Weapons of Conflict The trade unions and the empl...

Weapons of Conflict The trade unions and the employers (or their associations) have many ways of enforcing their demands on each other.   They include: Strikes:  The stri

A chemical producer dumps toxic waste into a river, A chemical producer dum...

A chemical producer dumps toxic waste into a river. The waste decreases the population of fish, decreasing profits for the local fishing industry by $100,000 per year. The firm cou

Milton friedman-demand function , Milton Friedman makes the demand for mon...

Milton Friedman makes the demand for money a function of the real per capital permanent income. in this study the demand function for money is stated as; M/NPP= r( YP/NP) δ W

Search and matching model, Search and Matching Model It  should  be  c...

Search and Matching Model It  should  be  clear  to  you  fiom  the  earlier section  that  there  are  a  variety  of models under the rubric of  search theory.  In  this sec

What is cross price easticity of demand, For some time, two firms have char...

For some time, two firms have charged $0.90 per standard unit of crating materials for shipping a particular type of machine tool and each has been selling about 20,000 units per m

Elasticity of demand, A baseball team is trying to predict ticket sales for...

A baseball team is trying to predict ticket sales for the upcoming season. They are also considering increasing prices. The market has a population of 2 million persons. The team s

What is an opportunity cost?, Opportunity cost is cost of a different that ...

Opportunity cost is cost of a different that must be forgone in order to pursue a definite action. Put another way, the advantages you could have received by taking an alternative

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd