© G Rajaguru
Bond Business School
ECON12-200/Econ71-200 Linear Models and Applied Econometrics
Lab Session Questions
Week 2: Lab2
Simple Linear Regression Model & Inference in Simple Linear Regression model
Question 1
The general manager of an engineering firm wants to know if a technical artist’s experience
influences the quality of their work. A random sample of 24 artists is selected and their years
of work experience and quality rating (as assessed by their supervisors) recorded. Work
experience (EXPER) is measured in years and quality rating (RATING) takes a value of 1
through 7, with 7 = excellent and 1 = poor. The simple regression model RATING = β₁ + β₂
EXPER + e is proposed. The least squares estimates, of the model, and the standard errors of
the estimates, are
RATING
= 3.204 + 0.076 EXPER
( se)
(0.709) (0.044)
(a) Sketch the estimated regression function. Interpret the coefficient of EXPER.
(b) Construct and interpret a 95% confidence interval for β₂, the slope of the relationship
between quality rating and experience.
(c) Test the null hypothesis that β₂ is zero against the alternative that it is not using a two-tail
test and the α = 0.05 level of significance. What do you conclude?
(d) Test the null hypothesis that β₂ is zero against the one-tail alternative that it is positive at
the α = 0.05 level of significance. What do you conclude?
Question 2
The file Q2.xlsx contains data on 880 houses sold in Stockton, CA during mid 2005. This
data was considered in Lab1 (Question 2).
Data definition: Q2.xlsx
PRICE SQFT
Obs: 880 home sales in Stockton, CA during mid-2005
price house price, $
sqft
total square feet of living area
(a) Estimate the regression model PRICE = β₁+ β₂ SQFT + e for all the houses in the
sample. Interpret the slope coefficient.
(b) Compute the variance of the residual series σˆ 2 .
(c) Is there a linear relationship between PRICE and SQFT at the 5% level of
significance?
© G Rajaguru
(d) Test the hypothesis that an additional square foot of living area increases house price
by $80. Use a two-tail test using the α = 0.05 level of significance.
(e) Construct and interpret a 95% interval estimate for β₂.