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

Public sector borrowing requirement (psbr), PUBLIC SECTOR BORROWING REQUIRE...

PUBLIC SECTOR BORROWING REQUIREMENT (PSBR) Public Sector Borrowing Requirement (PSBR) is the amount which the government needs to borrow in any one year to finance an excess e

Firms with market power, A firm with market power has estimated the followi...

A firm with market power has estimated the following demand function for its product: Q = 12,000 – 4,000 P where P = price per unit and Q = quantity demanded per year. The firm’s t

MBA, different types of markets and role in managerial economics

different types of markets and role in managerial economics

How we can measure elasticity of demand, How we can measure Elasticity of d...

How we can measure Elasticity of demand Though a manager requires an exact measure of this relationship for appropriate business decisions. Elasticity of demand is a measure t

Production-possibilities, a) A change in demand means that: b) On the pr...

a) A change in demand means that: b) On the production-possibilities drawing, unemployment is represented by:

#, Illustrate the application of economic theory to some business problems

Illustrate the application of economic theory to some business problems

Projection method of demand forecasting, Explain trend projection method of...

Explain trend projection method of demand forecasting with illustration.

Equilibrium and disequilibrium in balance of payments, Equilibrium and Dise...

Equilibrium and Disequilibrium in the Balance of Payments If on the current account , the value of exports is equal to the value of imports, the balance of payments is said t

Explain systematic failures of government, Question 1: (a) How do econ...

Question 1: (a) How do economists go about studying the economics of the public sector? Describe the four stages of analysis. (b) What are the main reasons explaining syst

#titlmonopolistic competition and oligopolye.., #quest Describe the oligopo...

#quest Describe the oligopoly market structure and give some examples.ion..

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