Question 11.85

11.85 Education and income.

CASE 10.1 Recall Case 10.1 (pages 485–486), which looked at the relationship between an entrepreneur’s log income and level of education. In addition to the level of education, the entrepreneur’s age and a measure of his or her perceived control of the environment (locus of control) was also obtained. The larger the locus of control, the more in control one feels.

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  1. Write the model that you would use for a multiple regression to predict log income from education, locus of control, and age.
  2. What are the parameters of your model?
  3. Run the multiple regression and give the estimates of the model parameters.
  4. Find the residuals and examine their distribution. Summarize what you find.
  5. Plot the residuals versus each of the explanatory variables. Describe the plots. Does your analysis suggest that the model assumptions may not be reasonable for this problem?

11.85

(a) . (b) The parameters are: , and . (c) . (d) The Normal quantile plot shows the residuals are Normally distributed. (e) All three residual plots look good (random). Both linearity and constant variance are valid.