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2. (6 points) Provide the answer for each of the questions below. (a) When severe multicollinearity is present, explain why estimation of parameters is poor.
2. (6 points) Provide the answer for each of the questions below. (a) When severe multicollinearity is present, explain why estimation of parameters is poor. De- scribe how ridge regression deals with the presence of multicollinearity in the data. (b) You are given a data set where the variance of the response variable is not stable. Describe the purpose of using weighted least squares (WLS) method instead of ordinary least squares (OLS) method to estimate the coefficients in a linear regression model for this data. What are the advantage(s) and disadvantage(s) of the WLS method? (c) Suppose a linear regression model with k = 2 regressors has been fitted to n = 43 observations and R2 = 0.48 is obtained. Test for the significance of the model (report the test statistic, p-value and conclusion) at significance level 0.01
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