Question: Suppose that we are interested in estimating the effect that companies' spending on R&Dhas on their profitability. For this, we estimate the regression model where

Suppose that we are interested in estimating the effect that companies' spending on R&Dhas on their profitability. For this, we estimate the regression model where the profit-to-sales ratio is our dependent variable and the R&D spending-to-sales ratio is the main explanatory variable. We also include in the regression the dummy variables that are indicators of the sector where a com- pany works. Let's say that there are five sectors and each company belongs to one (and only one) of them. Then we include five dummy variables in the regression. Each of them takes a value of 1 if the company belongs to this sector and 0 otherwise. Our regression command in Stata is: "regress prof rd spend d1 d2 d3 d4 d5" where prof is profit-to-sales ratio variable, rd spend is R& D spendings-to-sales ratio variable, d1-d5 are dummy variables for the sectors. (a) When we run this regression in Stata, it drops one of the industry indicator dummy variables. Why is that

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