22 In the following regression equation a logarithmic transf

22.       In the following regression equation a logarithmic transformation was applied to the dependent variable Y:           ln(y) = 2.07 + 0.55 ln(x)

A one percent change in x implies that the average value of y increases by:

a.         2.07

b.         -7.92

c.         .55%

d.         2.07%

Solution

dy/dx = 0.55*1/x => dy = 0.55* dx/x

1% change in x => dx/x = 0.01 => dy = 0.55*0.01 = 0.0055

y is increased by 0.55%