In a study of population density as a function of distance from the central business district, Maddala obtained the following regression results based on a sample of 39 census tracts in the Baltimore area in 1970.
where V = the population density in the census tract and X = the distance in miles from the central business district.
a. What assumption, if any, is the author making about heteroscedasticity in his data?
b. How can you tell from the transformed WLS regression that heteroscedasticity, if present, has been removed or reduced?
c. How would you interpret the regression results? Do they make economic sense?