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Assume you run regression where you explain vineyard

Question
Urban
Economics
Problem Set
#5
no late problems
sets
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anymore Question 1
Assume you run regression where you explain vineyard land profits as a function of
temperature, rainfall and a time trend. The table below reports the results of two
different models. The dependent variable is the natural logarithm of profits. Temperature
(in degree Celsius)
2
(Temperature)
(in degree Celsius)
Rainfall Harvest
(in milliliters)
Trend R2 Equation 1
Ln(profit)
0.402
(6.62)
-0.009
(4.09)
-0.435
(-2.99)
0.021
(6.66) Equation 2
Ln(profit)
0.302
(6.99) 0.88 0.86 -0.455
(-3.04)
0.022
(6.36) a) Which of the two equations do you prefer? Why?
b) Refer to Equation 1 and calculate the profit maximizing temperature. Show your
work.

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