3.

M1 - Qi= b1+ b2Pi+ + b3Zi+ ui,

where, E(ui) = 0, E(ui2) =i2

M2 - Qi/Pi= b1/Pi+ b2+ b3Zi/Pi+ ei,

where, E(ei) = 0, and E(ei2) =2

a.Which equation(s)has a homoscedastic error term?

b.How does theinterpretation of b2 change in both models?

c.Based on the error term for Model 2, what specific assumption is made concerning the error term in Model 1.

3. M1 - Q; = b1 + b2P;+ + b3Zi+ ui , where, E(u;) = 0, E(u; 2) =0? M2 - Q;/P; = b1/P; + b2 + b3Z;/P; + ei, where, E(e;) = 0, and E(e; 2) = 02 a. Which equation(s) has a homoscedastic error term? b. How does the interpretation of b2 change in both models? c. Based on the error term for Model 2, what specific assumption is made concerning the error term in Model 1