Urban Economics Problem Set #5

Question 

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

(in degree Celsius)

0.402(6.62) 0.302(6.99)
(Temperature)2

(in degree Celsius)

-0.009(4.09)  
Rainfall Harvest

(in milliliters)

-0.435(-2.99) -0.455(-3.04)
Trend 0.021(6.66) 0.022(6.36)
     
R2 0.88 0.86

 

  1. a) Which of the two equations do you prefer? Why?
  2. b) Refer to Equation 1 and calculate the profit maximizing temperature. Show your

 

work.

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