We model the salary of the average inhabitant of Pinkland. Salaries are a function of education (expressed in years), working hours (expressed in hours), firm sales and sector. There are 3 sectors in Pinkland, namely agriculture, industry and service.

Salaries are expressed in pinkies (currency of Pinkland). The model is estimated as follows:

Log(salary) = 1.2 +0.08*educ+ 0.6*log(hours) + 0.16*log(sales) + 0.37*industry +0.56*service

N=800

R2 = 0.78

1)Interpret the coefficient on education. What type of relationship is this?

2)Interpret the coefficient on "hours" and "sales". What type of relationship are these?

3)We have 3 categorical variables in the regression. Which is the base category?

4)Interpret the coefficient on "industry" and "service".

5)Interpret the R2. Is this high enough in your opinion?

Don't forget: Log referrers to natural logarithm!