QUESTION 3 Consider the following model: Y = By + B, X, + B2 Dzi + B3 D;i + u Y: Annual earnings of MBA graduates X: Years of Service Dz = 1 if Harvard MBA and 0 otherwise Da = 1 if Wharton MBA and 0 otherwise Define a dummy variable. Identify the dummy variables in the above model. [15%] (ii) What are the expected signs of various coefficients B1, B2, B3? [25%] Interpret the coefficients B2 and B3 [25%] iv) If B2> B3. what conclusion would you draw? [10%] See next page ( v ) Now consider an extended model: Yi = Bot B1 Xi + B2 Dzi + B3 Dzi + B4 Dzi *Xi + Bs Dzi *Xit u (a) What are the interpretations of B4 and Bs ? [15%] (b) How would you test the hypothesis B4 = Bs=0? Describe the steps. [10%]