When should a variable be included in the regression? Suppose you are doing a study to asses the effect of a state tax levied on large sodas, on the rates of diabetes across states. You hypothesize that higher taxes on large sodas will cause people to consume less sugar, thereby resulting in fewer instances of diabetes and propose the following model:
B0+B1 tax +B2 percmale +B3 perc18 +u diabetes
where
diabetes rate of diabetes in the population
tax level of taxes on large sodas
percmale percentage of the population that is male
u error term
Suppose males are genetically more predisposed to develop diabetes than females, and that the passage of tax laws is independent of the gender breakdown of the state.
True or False: Including a variable to control for the percentage of males in the population would reduce the error variance while not inducing mutlicollinearity
A. True
B. False

Consider the local telephone company, a natural monopoly. the following graph shows the monthly demand curve for phone services and the company’s marginal revenue (mr), marginal cost (mc), and average total cost (atc) curves. 0 2 4 6 8 10 12 14 16 18 20 100 90 80 70 60 50 40 30 20 10 0 price (dollars per subscription) quantity (thousands of subscriptions) d mr mc atc 8, 60 suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints. complete the first row of the following table. pricing mechanism short run long-run decision quantity price profit (subscriptions) (dollars per subscription) profit maximization marginal-cost pricing average-cost pricing suppose that the government forces the monopolist to set the price equal to marginal cost. complete the second row of the previous table. suppose that the government forces the monopolist to set the price equal to average total cost. complete the third row of the previous table. under average-cost pricing, the government will raise the price of output whenever a firm’s costs increase, and lower the price whenever a firm’s costs decrease. over time, under the average-cost pricing policy, what will the local telephone company most likely do