Nii Narku Nortey

1a. I included an interaction between prior experience and education because I believe education
and experience interact positively. People with more experience become more productive with
an additional year of schooling.

1b. Wage = ß0 + ß1exper + ß2educ +ß3exper*educ

Estimation of the model using the giving variables will give us:
Wage = 271.93 – 32.66exper + 35.11educ + 3.90exper*educ
(230.23) (19.10) (16.63) (1.46)
N= 934 R2 = .142
1c

Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
educ 935 9 18 13.47 2.197
Valid N (listwise) 935

Educ medium mean = 13.47

Educ Low Mean = 13.47 – 2.197 Educ High Mean = 13.47 + 2.197
= 11.3 = 15.67
i. The marginal effect of experience at different levels of education, given ß1 + ß3educ
Low level of education = -32.66 + 11.3(3.90)
= 11.41
Wages increase by 11.41 when experience rises by 1 unit at low level of education.

ii. Medium level of education = -32.66 + 13.47(3.90)

= 19.9
Wages increase by 19.9 when experience rises by 1 unit at a medium level of education.
iii. High level of education = -32.66 + 15.67(3.90)
= 28.45
Wages increase by 28.45 when experience rises by 1 unit at a high level of education.

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Nii Narku Nortey

1d Interaction 1 (Medium Mean)

Wage = 271.93 + 19.92exper + 35.11educ + 3.90exper*(educ-mean)
(230.23) (3.27) (16.63) (1.46)
N= 934 R2 = .142
H0 : βexper = 0
H1 : βexper ≠ 0
Degree of freedom (df)= n-k-1 = 934-3-1= 930
Since the degree of freedom is greater than 120, the standard normal critical value of 5% will be
used.
Critical value = 1.645
Texper = 19.92/3.27 = 6.1
Under medium marginal effect, we reject H0 since the critical value is less than the t-test value.
Interaction 2 (Below Mean)
Wage = 271.93 + 11.45exper + 35.11educ + 3.90exper*(educ-mean)
(230.23) (3.94) (16.63) (1.46)
N= 934 R2 = .142
H0 : βexper = 0
H1 : βexper ≠ 0
Critical value = 1.645
Texper = 11.45/3.94 = 2.9
Under low marginal effect, we reject H0 since the critical value is less than the t-test value.

Interaction 3 (Above Mean)

Wage = 271.93 + 28.49exper + 35.11educ + 3.90exper*(educ-mean)

(230.23) (5.14) (16.63) (1.46)
N= 934 R2 = .142
H0 : βexper = 0
H1 : βexper ≠ 0
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Nii Narku Nortey

Critical value = 1.645

Texper = 28.49/5.14 = 5.5
Under high marginal effect, we reject H0 since the critical value is less than the t-test value.

1d Yes, the results support my contention in 1a in each of the t-tests for the low, medium, and
high marginal effects; we rejected H0 (null hypothesis) in favor of H1 (the alternative hypothesis).
This implies that there is a statistically significant relationship between the marginal effects and
wages. It is a confirmation that education and experience interact positively such that people
with more experience become more productive with an additional year of schooling.

Question Two

2a A quadratic term is included in the model because sat score has a parabolic relationship with
graduating class size. Thus, when the graduating class size is small, we can expect students SAT
scores to be low because students might not be attending class, writing assignments, or spending
enough time with their books. But over time, as the class size graduation rate increases due to
authorities and teachers' measures, we expect SAT scores to increase because an increase in class
size graduation rate implies student’s performance is high.

2b sat = ß0 + ß1hsize + ß2hsize2 + u

sat = 997.98 + 19.814hsize – 2.131hsize2 + u
(6.20) (3.99) (0.55)
N= 41366 R2 = 0.031

Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
hsize 4137 .0 9.4 2.800 1.7366
Valid N (listwise) 4137

Hsize Medium Mean = 2.800 SD= 1.74

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Nii Narku Nortey

Hsize Low Mean = 2.8 – 1.74

= 1.06
Hsize High = 2.8 + 1.74
= 4.54
Given marginal effect of X = ß1 + 2ß2X
Hsize low marginal effect = 19.81 + (2*-2.131)(1.06)
= 15.29
Hsize medium marginal effect = 19.81 + (2*-2.131)(2.8)
= 7.88
Hsize high marginal effect = 19.81 + (2*-2.131) (4.54)
= 0.46
2c Optimal class size in original model
Given the turning point, X = - ß1/ 2ß2
The optimal value = -19.81/2(-2.131)
= 4.65
SAT reaches the maximum at a graduation size of 465 students, thus, 4.65(100).
Optimal class size at low marginal effect
Given the turning point, X = - 15/ 2(-2.13)
The optimal value = -15.29/-4.262
= 3.59
SAT reaches the maximum graduation class size at low marginal effect with 359 students, thus,
3.59(100).
Optimal class size at medium marginal effect
Given the turning point, X = -7.88/ 2(-2.13)
The optimal value = -7.88/-4.262
= 1.85
SAT reaches the maximum graduation class size with 185 students at medium marginal effect,
thus, 1.85(100).

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Optimal class size at high marginal effect

Given the turning point, X = -0.46/ 2(-2.13)
The optimal value = -7.88/-4.262
= 0.108

SAT reaches the maximum graduation class size at high marginal effect with 11 students, thus,
0.108(100).

2d No, the results do not support my contention in 2a because I expected a low sat score to reflect in
low-class size graduation rate. However, the optimal values obtained in 2c indicate that at low marginal
effects, the class graduation rate is high (359), and at high marginal effects, the class graduation rate is
low (11).

Overcrowding

1a There is the possibility of multicollinearity if both attendance and hours of studying are
included in the model. This is because both variables measure the seriousness of a student. The
likelihood of overcrowding our model is high. However, including either of these variables will
be challenging to assess on the surface. We might have to run some statistical tests such as
correlation to determine the level of association between alcohol consumption and student
attendance on one hand and hours of studying on the other hand. Suppose we decide to include
both variables in the model. In that case, we will interpret βalcohol as the effect of alcohol
consumption on college GPA, holding attendance, or hours of studying fixed or constant.

1b No, we cannot include both HS GPA and HS class rank as controls in the same regression
model because both variables are a way of ranking students’ performance in a class. Class rank is
a way of ordering students' GPAs. In a class, a student with the highest GPA is ranked number
one. But we can include either of these variables in the model because a student’s drinking
behavior could influence a student’s performance or rank in class.