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Ridge Regression for Addressing of the Multicollinearity Problem with Application in Cost of Production

In: New Approaches in Social and Humanistic Sciences

Author

Listed:
  • Ali Sadig Mohommed BAGER

    (The Bucharest University of Economic Studies, Department of Statistics and Econometrics, Iraq, Muthanna University)

  • Bahr KADHIM MOHAMMED

    (The Bucharest University of Economic Studies, Department of Statistics and Econometrics, Iraq, University of AL-Qadisiyah)

  • Meshal HARBI ODAH

    (The Bucharest University of Economic Studies, Department of Statistics and Econometrics, Iraq, Muthanna University)

Abstract

The regression analysis is statistical method of extensive use, which illustrates the relationship between the explanatory variables and the dependent variable in the form of a model useful in the interpretation of scientific phenomenon, bringing also benefits to society. In this paper we study the most important factors affecting the cost production of cement (Muthanna Factory) by using the ridge regression. The factors are described as follows: we consider the cost of production amount as response variable and factors that affect or may affect the explanatory variables are labor, Price per ton, Electric power, Quantity consumed. They all suffer from high correlation, indicating a problem of multicollinearity .The data analysis is included in the study of the ridge regression as the best approach in case of a multicollinearity problem in the context of financial and economic data being associated with each other often. We used R packages (MASS).

Suggested Citation

  • Ali Sadig Mohommed BAGER & Bahr KADHIM MOHAMMED & Meshal HARBI ODAH, 2018. "Ridge Regression for Addressing of the Multicollinearity Problem with Application in Cost of Production," Book chapters-LUMEN Proceedings, in: Veaceslav MANOLACHI & Cristian Mihail RUS & Svetlana RUSNAC (ed.), New Approaches in Social and Humanistic Sciences, edition 1, volume 3, chapter 4, pages 56-63, Editura Lumen.
    • Handle: RePEc:lum:prchap:03-04
    DOI: https://doi.org/10.18662/lumproc.nashs2017.4
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    More about this item

    Keywords

    Ridge regression; Mullticollinearity problem; Production of cement;
    All these keywords.

    JEL classification:

    • A3 - General Economics and Teaching - - Multisubject Collective Works
    • I2 - Health, Education, and Welfare - - Education
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • M0 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General

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