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Urban Economics Assignment
Assume you run regression where you explain vineyard land profits as a function of temperature, rainfall and a time trend. The table below reports the results of two different models. The dependent variable is the natural logarithm of profits.
Equation 1 Ln(profit)
Equation 2 Ln(profit)
Temperature (indegreeCelsius)
0.402(6.62)
0.302(6.99)
(Temperature)2 (indegreeCelsius)
-0.009(4.09)
RainfallHarvest (inmilliliters)
-0.435(-2.99)
-0.455(-3.04)
Trend
0.021(6.66)
0.022(6.36)
R2
0.88
0.86
a) Which of the two equations do you prefer? Why?
b) Refer to Equation 1 and calculate the profit maximizing temperature. Show your work.
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