Draw on the skill circle model and assume that total labor cost to the firm equals $120, half of which is training cost; the other half is equal to the wage. If unit training cost is $1,200, how many firms are there?

(1) Refer to the “State Data” file posted under “Resources” on NYU Classes.
In Excel, create a scatter plot with Murders as the Y variable and Density as the X variable. Show a simple linear regression through this scatter plot and show the equation and the R2. What does the R2 convey?

(2) Now refer to the same data and run a proper regression in Stata or Excel with Murders as the dependent variable (Y) and Density as the independent variable (X).
Show your regression including all test statistics.
(3) Now add two more independent variables (X variables) and run the following linear
equation:
MURDERS = b0 + b1*DENSITY + b2*CHRISTIANS + b3*POVERTY
Show your Stata or Excel output. Note: Density denotes population per square mile, Christians denotes the percentage of Christians (in %), and Poverty is the percentage of population below the poverty line. Murders is homicides in 100,000 people.
a) Interpret the R2. What does it mean?
b) What are the marginal effects of DENSITY, CHRISTIANS, and POVERTY on MURDERS? Say what the coefficients mean and whether they are trustworthy/significant.
(4) Skill Matching
Draw on the skill circle model and assume that total labor cost to the firm equals $120, half of which is training cost; the other half is equal to the wage. If unit training cost is $1,200, how many firms are there?

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