Derivation of the Ordinary Least Squares Estimator
Taking the partial derivative of equation (7) w.r.t. and setting the resulting equations equal to zero, the following first order conditions are obtained: (9) Solving these two equations for the two unknowns, , one obtains the OLS estimates for a and b given the three paired observations. The first equation in equation 9 can be simplified as: (10) ................
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