SCENARIO 15-2
in Hawaii, Condemnation Proceedings Are Under Way to Enable

question 113

Multiple Choice

SCENARIO 15-2
In Hawaii, condemnation proceedings are under way to enable private citizens to own the property
that their homes are built on. Until recently, only estates were permitted to own land, and
homeowners leased the land from the estate. In order to comply with the new law, a large Hawaiian
estate wants to use regression analysis to estimate the fair market value of the land. The following
model was fit to data collected for n = 20 properties, 10 of which are located near a cove. Model 1: $Y = \beta _ { 0 } + \beta _ { 1 } X _ { 1 } + \beta _ { 2 } X _ { 2 } + \beta _ { 3 } X _ { 1 } X _ { 2 } + \beta _ { 4 } X _ { 1 } ^ { 2 } + \beta _ { 5 } X _ { 1 } ^ { 2 } X _ { 2 } + \varepsilon$
where $Y =$ Sale price of property in thousands of dollars
$X _ { 1 } =$ Size of property in thousands of square feet
$X _ { 2 } = 1$ if property located near cove, 0 if not Using the data collected for the 20 properties, the following partial output obtained from Microsoft
Excel is shown:
-Referring to Scenario 15-2, is the overall model statistically adequate at a 0.05 level of significance for predicting sale price (Y) ?

• A) No, since some of the t tests for the individual variables are not significant.
• B) No, since the standard deviation of the model is fairly large.
• C) Yes, since none of the ?-estimates are equal to 0.
• D) Yes, since the p-value for the test is smaller than 0.05.

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Definitions:

Profit Maximizing

refers to a firm's goal of achieving the highest possible profit, where marginal costs equal marginal revenue, guiding pricing and production decisions.

Perfectly Competitive

A market configuration where numerous small businesses are present, with each selling identical items, coupled with the absence of entry or exit hurdles and complete transparency of information among consumers and vendors.

Optimal Output

The level of production that results in the highest possible profit for a firm, determined by the point where marginal cost equals marginal revenue.

Short-Run Costs

Expenses that vary directly with the level of output in the short term, where at least one input is fixed.