To Examine the Local Housing Market in a Particular Region

question 45

Essay

To examine the local housing market in a particular region, a sample of 120 homes sold during a year are collected. The data are given below:




Partition the data into training (50 percent), validation (30 percent), and test (20 percent) sets. Predict the sale price using multiple linear regression. Use Sale Price as the output variable and all the other variables as input variables. To generate a pool of models to consider, execute the following steps. In Step 2 of XLMiner's Multiple Linear Regression procedure, click the Best subset option. In the Best Subset dialog box, check the box next to Perform best subset selection, enter 6 in the box next to Maximum size of best subset:, enter 1 in the box next to Number of best subsets:, and check the box next to Exhaustive search.
a. From the generated set of multiple linear regression models, select one that you believe is a good fit. Express the model as a mathematical equation relating the output variable to the input variables.
b. For your model, what is the RMSE on the validation data and test data?
c. What is the average error on the validation data and test data? What does this suggest?

---

Definitions:

Curve Steepness

The rate at which the slope of a curve increases or decreases, often used in economics to describe the sensitivity of one variable to another.

Maximizes Profits

The process or strategy whereby a firm adjusts its production and pricing to achieve the highest possible profit.

Average Total Cost

Average total cost is calculated by dividing the total cost of producing a given output level by the quantity of output, reflecting the average cost per unit of output produced.

Total Profit

The net income a business earns after subtracting all costs, expenses, and taxes from the total revenue.