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

Mba assignment, what is the role of managerial economics in running a busin...

what is the role of managerial economics in running a business?

The determination of equilibrium national income, THE DETERMINATION OF EQUI...

THE DETERMINATION OF EQUILIBRIUM NATIONAL INCOME National income is said to be in equilibrium when there is no tendency for it either to increase or for it to decrease.  The a

Discount rate (bank rate), Discount Rate (Bank Rate) This is the rate ...

Discount Rate (Bank Rate) This is the rate on central bank advances and is also called official discount rate or "minimum lending rate".  When commercial banks find themselves

Nature of commodity and income elasticity, For all regular goods, income el...

For all regular goods, income elasticity is positive though the degree of elasticity fluctuates as per the nature of commodities. Consumer goods are generally categorised under thr

The calculus of optimization, the demand for widgets(x) is given by: px=160...

the demand for widgets(x) is given by: px=160 -4x the production of widget has the following average variable cost: Avc=2x-20 fixed cost are 162 calculate the output level of widg

Demand, factors influencing the demand for dove soap

factors influencing the demand for dove soap

Real rigidities in the goods market, Real Rigidities in the Goods Market  ...

Real Rigidities in the Goods Market   The most important factor associated with real rigidity in  the goods market  is the existence of  imperfect  competition.  Imperfect comp

Significance of the behavioural approach, The significance of behavioural a...

The significance of behavioural approach is difficult to assess. It provides useful insights into some aspects of business behaviour. March and Cyert have claimed considerable shor

Limits on the process of bank deposit creation, Limits on the process of ba...

Limits on the process of bank deposit creation On the demand side , there may be a lack of demand for loans, or at least of borrowers who are sufficiently credit worthy .

Fundamental concepts of decision-making theory, fundamental concepts of dec...

fundamental concepts of decision-making theory The fundamental concepts of decision-making theory have been culled from microeconomic theory and have been furnished with new t

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