Question: 11.8 Consider the linear probability model Yi = b0 + b1Xi + ui, where Pr(Yi = 1Xi) = b0 + b1Xi. a. Show that E(ui

11.8 Consider the linear probability model Yi = b0 + b1Xi + ui, where Pr(Yi = 1Xi) = b0 + b1Xi.

a. Show that E(ui Xi) = 0.

b. Show that var(ui Xi) = (b0 + b1Xi)[1 - (b0 + b1Xi)]. [Hint: Review Equation (2.7).]

c. Is ui heteroskedastic? Explain.

d. (Requires Section 11.3) Derive the likelihood function.

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