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(1) (3 points) Generate an histogram of the medical costs and compute de- scriptive statistics (mean, median, standard deviation, minimum, max- imum). Is the distribution
(1) (3 points) Generate an histogram of the medical costs and compute de- scriptive statistics (mean, median, standard deviation, minimum, max- imum). Is the distribution symmetric? Why or why not, in your view? (2) (3 points) Take a logarithmic transformation of the medical costs. Plot the histogram of the log-costs. What do you notice now? How would you explain the change? Begin by excluding all categorical variables (sex, smoker and region). (3) (4 points) Run a regression of the log-costs on the non-categorical ex- planatory variables: log(cost,) = On + Orage, + Ogbmi; + 03children, + E, where &, is an error term. (4) (3 points) Give an economic interpretation of the estimated coefficients in the regression above. What does the model say about the determi nants of medical costs? (5) (4 points) We want to test whether the coefficient 0, for bri is statis- tically significant. Test the hypothesis using the relevant test statistic. Does bri have more or less explanatory power than age? (6) (3 points) We want to test whether the coefficient 0 for bri is statis- tically significant. Test the hypothesis using the relevant p-value
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