You are working as an analyst for a large cable company that offers bundles of channels all across the United States. One of the bundles is the basic package, which includes network channels along with a few other basic cable channels. You are interested in learning how the price of this basic package influences the rate of subscriptions in a market. You have data on subscriptions per 1,000 local residents, price for the basic package, and average local household income. You also have data on local telecom labor costs per subscriber. You believe this last variable influences the local price but not subscriptions per se. Use the data in Chap8Prob10.xlsx for this question.

a. Based on the data provided, write out an expression for the data-generating process for subscriptions per 1,000 local residents.

b. Estimate the effect of basic package price on subscriptions per 1,000 local residents using OLS. Why might you distrust this result as being a causal effect?

c. Estimate the effect of basic package price on subscriptions per 1,000 local residents using 2SLS.

d. Using your 2SLS results, what is a 99% confidence interval for the effect of the basic package price on subscriptions per 1,000 local residents?