When having a choice of which estimator to use with a binary ...

[Davideckstein7]

When having a choice of which estimator to use with a binary dependent variable, use
 
  A) probit or logit depending on which method is easiest to use in the software package at hand.
  B) probit for extreme values of X and the linear probability model for values in between.
  C) OLS (linear probability model) since it is easier to interpret.
  D) the estimation method which results in estimates closest to your prior expectations.

Question 2

A professor in your microeconomics lectures derived a labor demand curve in the lecture.
 
  Given some reasonable assumptions, she showed that the demand for labor depends negatively on the real wage. You want to put this hypothesis to the test (show me) and collect data on employment and real wages for a certain industry. You try to estimate the labor demand curve but find no relationship between the two variables. Is economic theory wrong? Explain.
  What will be an ideal response?

[vkodali]

Answer to Question 1

Answer: A

Answer to Question 2

Answer: This is a case of simultaneous causality. Since there is a supply of labor as well, the real wage depends on employment, which, in a market-clearing model, is determined by the intersection of supply and demand. In a Keynesian world with wait unemployment, you would expect a negative relationship between real wages and employment, given the capital stock and productivity.