# Solution

When you're starting out, it's best to break things up into little pieces. So start with the first component of cost, \$1.50 per pound of weight:

gen cost=1.5*weight

Next add the \$0.25 per pound to ship for foreign cars:

replace cost=cost+.25*weight if foreign

And finally the \$100 for cars with a rep78 of 5:

replace cost=cost+100 if rep78==5

Then the profit is price minus cost:

gen profit=price-cost

But once you're confident of what you're doing you can make it much more compact:

gen profit2=price-(1.5*weight + .25*weight*foreign + 100*(rep78==5))

This relies on two tricks: that true/false is equivalent to one/zero, and that adding something multiplied by zero is equivalent to not adding it. Thus .25*weight is only added for foreign cars, and 100 is only added for cars where rep78==5.

You can verify that these commands are equivalent with:

assert profit==profit2

Complete do file:

clear all
set more off
capture log close
log using data_ex1.log, replace
use auto

gen cost=1.5*weight
replace cost=cost+.25*weight if foreign
replace cost=cost+100 if rep78==5
gen profit=price-cost

gen profit2=price-(1.5*weight + .25*weight*foreign + 100*(rep78==5))
assert profit==profit2
list make profit*

log close

Last Revised: 12/17/2015