R. Bucklin, R. Caves, and A. Lo estimated the following double-log model to explain the yearly circulation of metropolitan newspapers (standard errors in parentheses):

Where:

C_i = yearly circulation of the ith newspaper

P_i = the weighted average single copy price of the ith newspaper

I_i = the total disposable income of the metropolitan area of the ith newspaper

Q_i = the number of personnel in editorial positions at the ith newspaper

A_i = the volume of retail advertising in the ith newspaper

S_i = amount of competition from suburban dailies in the ith newspaper’s region

T_i = the number of television stations in the ith newspaper’s region (All variables are in logarithmic form.)

a. Hypothesize signs and run t-tests on each of the individual slope coefficients.

b. Does heteroskedasticity seem theoretically likely? Explain.

c. Given your responses to parts a and b, what econometric problems (out of omitted variables, irrelevant variables, incorrect functional form, multicollinearity, serial correlation, and heteroskedasticity) appear to exist in this equation?

d. If you could suggest just one change in the specification of this equation, what would that change be? Carefully explain your answer.