* Piecewise OLS Model for Total Cost
*
* Keywords:
*     regression, ols, linear, dummy, interaction, piecewise, total cost
*
* Description:
*     We illustrate how to estimate a Piecewise OLS Model for Total Cost
*
* Author(s):
*     Skif Pankov
*
* Source:
*    Damodar N. Gujarati and Dawn C. Porter, Basic Econometrics - 5th Edition
*    McGraw-Hill International Edition, Chapter 9, Example 9.7 (page 297)
*

sample 1 10

* Reading the datafile and naming variables
read(data_9.7.shd) tc out

* Generating dummy interaction variable dout1 from a modified variable out
* and from a dummy d indicating that the output is higher than 5000 units
genr out1 = out - 5500
genr d = (out.ge.5500)
genr dout1 = d*out1

* Running an OLS regression of tc on out and dout1, stating to include
* residual statistics
ols tc out dout1 / rstat

stop