**Question **

Suppose you have a regression model that depicts the relationship between costs in dollars (C) and the machine hours(H) such that log(C) = 10 + 2(logH). Which of the following is the correct interpretation of the machine hours coefficient?

A) A 1 hour increase in machine use will increase costs by $2.

B) A 1 increase in costs will occur if there is a 2 hour increase in machine use.

C) A 1% increase in machine hours will increase costs 2%.

D) A 1% increase in costs will result from a 2% increase in machine hours.

**Question**

Which of the following is NOT likely to occur when multicollinearity exists in a model?

A) Inflated Adjusted R-squared

B) High correlation between a pair or pairs of variables.

C) A variance inflation factor (VIF) > 5.

D) Theoretically important variables having coefficients that are statistically insignificant.

For this question, none of the options is right. (All the options are true in a model with multicollinearity)

8.2.1: An analyst is evaluating the demand for building and construction materials relative to the cost of borrowing or the mortgage rate in Los Angeles and San Francisco. He believes that the following model is appropriate: Y = 10 + 5X1 + 8X2, where Y is demand in $100 per capita; X1 is mortgage rate in %, and X2 equals 1 if SF, 0 if LA.

**Question**

Given the information in 8.2.1, each additional increase of 1% in the mortgage rate will lead to an estimated average _________________ in demand for building materials, holding constant the effect of city.

A) Increase of $500 per capita.

B) Decrease of $500 per capita.

C) Increase of $5 per capita.

D) Decrease of $5 per capita.

**Question**

Using the model in 8.2.1, the interpretation of the coefficient for X2 is: Holding constant the effect of mortgage rates,

A) Demand for building materials is $800 more per capita in SF than in LA.

B) Demand for building materials is $800 more per capita in LA than SF.

C) Demand for building materials is $8 more per capita in LA than in SF.

D) Demand for building materials is $8 more per capita in SF than in LA.