(solution) In this model Y = yield, X = fertilizer, and u represents other

(solution) In this model Y = yield, X = fertilizer, and u represents other

In this model Y = yield, X = fertilizer, and u represents other factors that a?ect yield.The agricultural researcher is interested in the relationship between fertilizer and yield.

yield = ?0 + ?1fertilizer + u

where E[yield|fertilizer] = ?0 + ?1fertilizer

a. Consider a simple regression of yield on fertilizer. Suppose that regressiongenerates a positive estimate of the slope coe?cient ?1. Is it valid toconclude that farms that use more fertilizer appear to have higher yields?

b. Now consider the term u. What kinds of factors could be contained in u?

c. Will a simple regression of yield on fertilizer uncover the ceteris paribus
e?ect of fertilizer on yield? Explain.