Suppose, again, we believe that larger values of the explanatory variables are associated with a larger range of values for the disturbance. Now suppose we believe that V(εi ) = xi2σ 2 .

(a) In this case, what is the form of the population relationship in equation

(8.16)?

(b) In this case, what is the form of the sample relationship in equation

(8.19)?

(c) In this case, does equation (8.19) contain a term that is constant for all observations to the right of the equality? If no, why not? If yes, why?

If yes, what does this imply about the value of the calculated R2 for this equation? If yes, are there other assumptions about V(εi) that also imply that an intercept is present in equation (8.19)? What are they?