Bundle: Managerial Economics: Applications, Strategies And Tactics, 14th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
14th Edition
ISBN: 9781337198196
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 9, Problem 1.2CE
To determine
To evaluate the kind of mathematical relationship that would to appear to exist between enrollment and operating expenditures per students.
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If GDP goes up by 1% and the investment component of GDPgoes up by more than 1%, how is the investment share ofGDP changing in absolute terms?▶ In economics, what else is expressed as relative percentagechanges?
CEO Salary and Firm SalesWe can estimate a constant elasticity model relating CEO salary to firm sales. The data set is the same one used in Example 2.3, except we now relate salary to sales. Let sales be annual firm sales, measured in millions of dollars. A constant elasticity model is[2.45]ßßlog (salary) = ß0 + ß0log (sales) + u,where ß1 is the elasticity of salary with respect to sales. This model falls under the simple regression model by defining the dependent variable to be y = log(salary) and the independent variable to be x = log1sales2. Estimating this equation by OLS gives[2.46]log (salary)^=4.822 + 0.257 (sales) n = 209, R2 = 0.211.The coefficient of log(sales) is the estimated elasticity of salary with respect to sales. It implies that a 1% increase in firm sales increases CEO salary by about 0.257%—the usual interpretation of an elasticity.
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Bundle: Managerial Economics: Applications, Strategies And Tactics, 14th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
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