Question: Yi = 0 + 1Xi + 2D2i + 3D3i +ui Where Y = annual earnings of MBA graduates. X = years of service. D2 =

Yi = β0 + β1Xi + β2D2i + β3D3i +ui

Where

Y = annual earnings of MBA graduates.

X = years of service.

D2 = 1 if Harvard MBA,

= 0 otherwise.

D3 = 1 if Wharton MBA,= 0 otherwise. Find

What are the expected signs of the various coefficients?

How would you interpret β2 and β3?

If β2 > β3, what conclusion would you draw? (30 per cent)

Assume that a Harvard MBA graduate with 20 years of service/experience, what is his estimated annual income?

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