It Is Desired to Build a Regression Model to Predict $\mathrm { y } =$

question 85

Multiple Choice

It is desired to build a regression model to predict $\mathrm { y } =$ the sales price of a single family home, based on the neighborhood the home is located in. The goal is to compare the prices of homes that are located in four different neighborhoods. Which regression model should be built?

• A) \(\mathrm { E } ( \mathrm { y } ) = \beta _ { 0 } + \beta _ { 1 } \mathrm { x } _ { 1 }\), where \(\mathrm { x } _ { 1 }\) is a qualitative variable that describes the four neighborhoods.
• B) \(E ( y ) = \beta _ { 0 } + \beta _ { 1 } x _ { 1 } + \beta _ { 2 } x _ { 2 } + \beta _ { 3 } x _ { 3 }\), where \(x _ { 1 } - x _ { 3 }\) are qualitative variables that describe the four neighborhoods.
• C) \(\mathrm { E } ( \mathrm { y } ) = \beta _ { 0 } + \beta _ { 1 } \mathrm { x } _ { 1 } + \beta _ { 2 } \mathrm { x } _ { 2 } + \beta _ { 3 } \mathrm { x } _ { 3 } + \beta _ { 4 } \mathrm { x } _ { 4 }\), where \(\mathrm { x } _ { 1 } - \mathrm { x } _ { 4 }\) are qualitative variables that describe the four neighborhoods.
• D) \(\mathrm { E } ( \mathrm { y } ) = \beta _ { 0 } + \beta _ { 1 } \mathrm { x } _ { 1 } + \beta _ { 2 } \mathrm { x } _ { 1 } ^ { 2 }\), where \(\mathrm { x } _ { 1 }\) is a qualitative variable that describes the four neighborhoods.

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Definitions:

Appliance Manufacturer

A company engaged in the design, production, and sale of electrical or mechanical devices for domestic or commercial use.

MRPs

Material Requirements Planning, a production planning, scheduling, and inventory control system used to manage manufacturing processes.

Least-costly Combination

An optimal mix of inputs that minimizes the cost of production while achieving a desired level of output.

Marginal Productivity Theory

An economic theory proposing that labor and other input costs are based on the marginal contribution of each input to the production process.