Question

What are the four key assumptions examined in specification analysis in the case of simple​ regression? A. Four key assumptions examined in specification analysis are 1. Linearity of relationship between the dependent variable and the independent variable within the relevant range. 2. Constant variance of residuals for all values of the independent variable. 3. Fixed costs are allocated as if they are variable. 4. The relationship between the cost driver and the cost is not stationary. B. Four key assumptions examined in specification analysis are 1. Independence of residuals. 2. Normal distribution of residuals. 3. Fixed costs are allocated as if they are variable. 4. The relationship between the cost driver and the cost is not stationary. C. Four key assumptions examined in specification analysis are 1. Linearity of relationship between the dependent variable and the independent variable within the relevant range. 2. Constant variance of residuals for all values of the independent variable. 3. Independence of residuals. 4. Normal distribution of residuals. D. None of the above are correct.

Answer 1

Answer:

C. 1. Linearity of relationship between the dependent variable and the independent variable within the relevant range. 2. Constant variance of residuals for all values of the independent variable. 3. Independence of residuals. 4. Normal distribution of residuals.

Explanation:

The four keys assumptions that are examined in the case of simple regression with respect to the specification analysis is given below:

1. There should be relationship between the dependent and independent variable and that should be linear and do not cross the relevant range

2, The residual variances of the independent variable would remain the same

3. Residual independence

4. Residual normal distribution

These four should be considered

Hence, the option c is correct