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The economists estimated the following regression model: = lbwht; Bocigsi + Ui, (1) where lbwght denotes the log of baby's birthweight, cigs is number

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The economists estimated the following regression model: = lbwht; Bocigsi + Ui, (1) where lbwght denotes the log of baby's birthweight, cigs is number of cigarette smoked by the mother during pregnancy, and u; is the error term that include other factors that affect lbwht. (1) What is the assumption on u? Do you think it's a reasonable assumption in this model? (5 pts) (2) What is the economic meaning of Bo in equation (1)? (5 pts) (3) How do you interpret the economic meaning of in equation (1)? (5 pts). (4) Suppose we have estimate SST (5pts) = 50.42033, SSR = 1.298792, what is R? == (5) Suppose we have -0.004082. In equation (1), cigs is measured in number of cigarettes. Suppose now we replace "cigs" by "packs" which is "number of packs of cigarettes smoked, and rerun the regression. What will the coefficient of packs be? Based on your finding, argue why you shouldn't dismiss a regressor just because the magnitude of its coefficient is small. (5 pts)

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