Question: Use the data found in spreadsheet called problem #4 to estimate

$MC{{F}_{t}}={{\beta }_{0}}+{{\beta }_{1}}*Tem{{p}_{t}}+{{\beta }_{2}}*Weeken{{d}_{t}}+{{\beta }_{3}}*customer{{s}_{t}}+{{\beta }_{4}}*(Tem{{p}_{t}}*customer{{s}_{t}})+\varepsilon$

Customers is the number of individual homes in the system. The new variable $(Tem{{p}_{t}}*customer{{s}_{t}})$ is called a "cross-product term." We did not study it in class. However, if you truly understand how to answer question 3, you will be able to estimate this equation AND answer the following questions.

1. What is the marginal impact (onto MCF) if customers increase to 76,000 from 75,000, if it is a weekend and the temperature is 50F ⁰ ? Does this marginal impact make sense to you? Please explain in a two or three sentences.

   	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
   Intercept	294542.55	58397.57	5.043747	9.96E-07	179412.4	409672.7
   weekend	-2445.8883	758.3592	-3.22524	0.001463	-3940.99	-950.792
   temp	-4192.0539	946.029	-4.43121	1.52E-05	-6057.14	-2326.97
   customers	-2.148916	0.712556	-3.01579	0.002884	-3.55371	-0.74412
   temp*customers	0.034528	0.011521	2.997058	0.003059	0.011815	0.057241

   
   The fact that we are using a cross product Temp*Costumers means that the effect of a decrease in Costumers depends on the level of variable Temp . In this case, the effect onto MCF is 1000*(-2.148916)+50*1000*0.034528 = -422.516.
   This makes sense, and it takes into account the interaction between the two variables.
2. What is the marginal impact (onto MCF) if temperature goes DOWN from 50F0 to 49F0 when it is a weekend and there are 75,000 customers? Does this marginal impact make sense to you? Please explain in two or three sentences.

Solution:

Price: $2.99

Solution: The downloadable solution consists of 2 pages
Deliverable: Word Document

▼

Get Solution!

I agree with the Terms & Conditions

All sales are final.