Exercise 1(Conceptual Question, Part 1)It is a well-established empirical fact that, on average, manu-facturing plants that import raw materials tend to produce more output per dollar spent onraw materials than those that do not. In other words, suppose that we have access to a survey of manufacturing plants which includes: (1) how much output they produced, (2) whether they imported raw materials or not, and (3) how many dollars they spent in total on raw materials. One pattern that we often see in survey data like this is that even when two plants spend the exact same amount in total on raw materials, importers tend to produce more than non-importers.1.Provide two reasons why we might see this pattern. For each reason, provide an argumentfor why you think this makes sense. I will assign your grade on the basis of whether your answer is correct and the detail of your justication.2.Now suppose I told you that plants that import raw materialsandbuy domestic rawmaterials tend to produce more output per dollar than those than those that only buyone or the other. Which of your two reasons would this evidence support? Why?(Conceptual Question, Part 2)Another well-established fact is that there is a positive relationship between the number of years of education an individual has and their wages.Suppose you have access to a survey of individuals which includes: (1) how many years of post-secondary education they have, and (2) their wages. You also believe that there is anunobserved element that aects their wages call itability but you dont have data on that.Suppose you use a standard statistical procedure to estimate the eect of an additional year ofeducation on wages using your survey data. You nd that education does in fact appear to bestrong predictor of high wages.1.Now suppose you gain access to each individuals test scores a measure which youbelieve proxies for their ability. Describe how your prediction of the eect of educationon wages may change when you run the procedure again but include test sco