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.
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Equation 1 Ln(profit)
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Equation 2 Ln(profit)
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Temperature (indegreeCelsius)
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0.402(6.62)
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0.302(6.99)
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(Temperature)2 (indegreeCelsius)
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-0.009(4.09)
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RainfallHarvest (inmilliliters)
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-0.435(-2.99)
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-0.455(-3.04)
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Trend
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0.021(6.66)
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0.022(6.36)
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R2
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0.88
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0.86
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a) Which of the two equations do you prefer? Why?
b) Refer to Equation 1 and calculate the profit maximizing temperature. Show your work.