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Consider a simple linear regression model

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1. Consider a simple linear regression model where EPCil = 0 and FPI] = O.

The sample consists of two observations (Y1, X1) and (Y2, X2).

Additionally, assume that Var(11,1X3 = u2, i.e. it does not vary with x and that E[U1U2] = O.

Consider OLS estimator for : + Y2  = X1 +X2 Derive the variance of this estimator. 

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