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Create the dichotomous variables

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Reference no: EM132902463

Your firm just launched a new product and has solicited a large number of potential customers to rate its effectiveness between 0 and 100. You are particularly interested in how an individual's rating of the new depends on his/her age. To estimate this effect, you divide the potential customers into age groups: under 25, 26 - 40, 41 - 55, and over 55.

You then assume the following data-generating process:

Ratingi = α + β1Age25i + β2Age2640i + β3Age4155i + β4Age55i +Ui

Here, each Age variable is a dichotomous variable that equals 1 if individual i belong to that age group and 0 otherwise.

-Create the dichotomous variables: Age25, Age22640, Age4155, Age55.

-Why are you unable to estimate the effect of each age group as listed?

-Estimate and interpret the effect of changing age groups on the Rating.

Reference no: EM132902463

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