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Chapter 3, Problem 4P 5 Bookmarks Show all steps: ON

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The median starting salary for new law school graduates is determined by

log(salary) = β0 + β1LSAT + β2GPA + β3log(libvol) + β4log(cost) + βSrank + u,

where LSAT is the median LSAT score for the graduating class, GPA is the median college GPA Snap a photo from your
for the class, libvol is the number of volumes in the law school library, cost is the annual cost of phone to post a question
attending law school, and rank is a law school ranking (with rank = 1 being the best). We'll send you a one-time
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(i) Explain why we expect β5<0.

(ii) What signs do you expect for the other slope parameters? Justify your answers.
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(iii) Using the data in LAWSCH85.RAW, the estimated equation is
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= 8.34 + .0047 LSAT + .248 GPA + .095 log(libvol) + .038 log(cost) - .0033 rank n = a one-time automated text message with a link to get
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136, R2 = .842.

What is the predicted ceteris paribus difference in salary for schools with a median GPA different
by one point? (Report your answer as a percentage.)
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(iv) Interpret the coefficient on the variable log(libvol).

(v) Would you say it is better to attend a higher ranked law school? How much is a difference in
ranking of 20 worth in terms of predicted starting salary?

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Step 1 of 5

(i).

It is expected that , because a law school with a high rank means that the school’s
reputation is less which in turn lowers the starting salaries of the students coming out for
placements.

For example, a rank of 99 means that there are 98 schools thought to be better and when
, the salary of students from this law school, would be less than the students from other
99 law schools.

Comment

Step 2 of 5

(ii)

With respect to and , it is expected that the signs of these are positive. This is because
both LSAT and GPA are the measures of quality for the entering class. It does not matter where
better students attend law school, it is expected out of them to earn more, on average.

Similarly, and are expected to be greater than 0, because both the volume number in the
law library and the tuition cost can be considered as measures of the school quality.

Comment

Step 3 of 5

(iii)

If median GPA is different by one point, then ceteris paribus, the predicted difference in salary for
schools will be .

Comments (1)

this is wrong

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Step 4 of 5

(iv)

The coefficient on the variable refers to elasticity, that is, if there is a percent
increase in volumes in library, this implies that predicted median starting salary increases by
0.095 percentages, when other things remain equal.

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Step 5 of 5

(v)

It is definitely much better to attend a low rank law school, as rank 1 is the best and as the
rank increases, the predicted salary decreases.

If law school B has a ranking 10 less than law school C, the estimated difference in starting
salary will be higher for law school B.

Comment

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