Suppose you are interested in modeling the amount of money a firm spends on marketing their product.In order to have your results be of interest to a wide audience,you collect data from a variety of firms ranging from those who spend quite little on advertising to those that spend quite a bit.If you model advertising expenditures as a function of gross sales,your results might be subject to:
A)autocorrelation.
B)heteroscedasticity.
C)multicollinearity.
D)specification bias.

Question

Quizplus · Accepted Answer

Heteroscedasticity is a potential issue when modeling advertising expenditures as a function of gross sales. Firms that spend more on advertising may have a greater influence on the variance of the data, which can lead to heteroscedasticity. Autocorrelation refers to correlation between observations in a time series, which may not be relevant in this case. Multicollinearity refers to high correlations among independent variables, and specification bias refers to misspecification of the functional form of the model, neither of which are mentioned as potential issues in this scenario.

Suppose You Are Interested in Modeling the Amount of Money