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# Functional Forms Of Business Essay

660 words - 3 pages

MODEL LINEAR QUADRATIC RECIPROCAL LOG-LOG LOG-LINEAR LINEAR-LOG mean of educ median of educ mean of wage 13.81 13.00 20.63

b1 -7.13 6.06

b2 2.01 0.07

estimated wage when educ = 13.81 20.63 19.42 21.11 17.98 17.00 21.09

estimated wage when educ = 13 34.33 35.85 24.15 26.75 31.39 29.64

30.32 -127.18 0.29 1.59 -34.86 0.99 0.09 21.31

MODEL

b1

b2

Estimate of Marginal Effect Estimate of Elasticity when educ = mean (13.81) 2.01 1.93 0.67 1.29 1.53 1.62 1.35 1.38 0.44 0.99 1.24 1.06

LINEAR QUADRATIC RECIPROCAL LOG-LOG LOG-LINEAR LINEAR-LOG

-7.13 6.06

2.01 0.07

30.32 -127.18 0.29 1.59 -34.86 0.99 0.09 21.31

- The marginal effect gives the dollar change in hourly wage from an additional year of education. - The elasticity gives the percentage change in hourly wage from a percentage ...view middle of the document...

01 1.82 0.75 2.04 2.83 1.64 0.76 0.66 22.43 0.99 1.17 0.72

LINEAR QUADRATIC RECIPROCAL LOG-LOG LOG-LINEAR LINEAR-LOG

-7.13 6.06

2.01 0.07

30.32 -127.18 0.29 1.59 -34.86 0.99 0.09 21.31

- The marginal effect gives the dollar change in hourly wage from an additional year of education. - The elasticity gives the percentage change in hourly wage from a percentage increase in education.

One additional year of education is estimated to increase the hourly wage, on average, by - \$2 for LINEAR - \$1.8 for QUADRATIC - \$0.8 for RECIPROCAL - \$2 for LOG-LOG - \$2.8 for LOG-LINEAR - \$1.6 for LINEAR-LOG A 1% increase in years of education is estimated to increase the hourly wage, on average, by - 0.8% for LINEAR - 0.7% for QUADRATIC - 22.4% for RECIPROCAL - 1% for LOG-LOG - 1.2% for LOG-LINEAR - 0.7% for LINEAR-LOG

MODEL

b1

b2

Interpretation of b 1 with no education, average wage is estimated to be -\$7 with no education, average wage is estimated to be \$6 average wage is estimated to approach \$30 as education increases to very high levels

Interpretation of b 2 for each additional year of education, average wage is estimated to increase by \$2 average wage increases with education at an increasing rate average wage increases with education at a decreasing rate

LINEAR

-7.13

2.01

QUADRATIC

6.06

0.07

RECIPROCAL

30.32 -127.18

LOG-LOG

0.29

0.99

average wage is estimated to be \$1 with one year of education

average wage is estimated to increase by 1% for each percentage increase in education average wage is estimated to increase by 9% for each additional year of education average wage is estimated to increase by \$0.21 for each percentage increase in education

LOG-LINEAR

1.59

0.09

average wage is estimated to be \$5 with no education

LINEAR-LOG

-34.86

21.31

average wage is estimated to be -\$35 with one year of education

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