Question 1:

The variable rdintens is expenditures on research and development (R&D) as a percentage of

sales. Sales are measured in millions of dollars. The variable profmarg is profits as a percentage
of sales.
Using the data in RDCHEM for 32 firms in the chemical industry, the following equation is
estimated:

(i) Interpret the coefficient on log(sales).

(ii) Test the hypothesis that R&D intensity does not change with sales against the alternative that
it does increase with sales. Do the test at the 5% and 10% levels.
(iii) Does profmarg have a statistically significant effect on rdintens? Interpret the coefficient on
profmarg.

Question 2:
The following equation was estimated:

This equation allows roe to have a diminishing effect on log(salary). Is this generality necessary?
Explain why or why not.
Question 3:
An equation explaining chief executive officer salary is

The data used are in CEOSAL1, where finance, consprod, and utility are binary variables
indicating the financial, consumer products, and utilities industries. The omitted industry is
transportation.

What is the approximate percentage difference in estimated salary between the consumer
products and finance industries? Write an equation that would allow you to test whether the
difference is statistically significant.

Question 4:
The following model is run and tested.
What conclusion do you make based on this result?