Question 2 (5 points)
Suppose that the Australian government launched a subsidy program for the hotels industry, which gives subsidy on renovation of rooms to hotels whose average room rates are less than 200 Australian dollars per night. To study the effect of this program on employment in the hotels industry, you collected data on average room rates and employment records of hotels. Load the dataset using the following command:
• For Windows users:
dat = read.csv("C:/FinalExamData/12345678Question2Data.csv")
• For Mac Users:
dat = read.csv("~/FinalExamData/12345678Question2Data.csv")
Each observation in the dataset represents a hotel in Australia. Variables in the dataset are:
• rates: average room rate of a hotel, based on sales data
• employment: number of full-time employees divided by total number of rooms of a hotel
(a) (2 points) Draw a scatterplot of rates and employment. Determine if there is a discontinuity in the scatterplot.
(b) (3 points) Suggest a reason why the regression discontinuity design may not be appropriate for this dataset. (Hint: Some hotels are old requiring renovation of rooms while other hotels are new notrequiring renovation.)
