A Realtor Wants to Predict and Compare the Prices of Homes

question 53

Short Answer

A realtor wants to predict and compare the prices of homes in three neighboring locations. She considers the following linear models:
Model A: Price = β₀ + β₁ Size + β₂ Age + ε
Model B: Price = β₀ + β₁ Size + β₃ Loc1 + β₄ Loc2 + ε
Model C: Price = β₀ + β₁ Size + β₂ Age + β₃ Loc1 + β₄ Loc2 + ε
where,
Price = the price of a home (in $1,000s)
Size = the square footage (in sq. feet)
Loc1 = a dummy variable taking on 1 for Location 1, and 0 otherwise
Loc2 = a dummy variable taking on 1 for Location 2, and 0 otherwise
After collecting data on 52 sales and applying regression, her findings were summarized in the following table. Note: The values of relevant test statistics are shown in parentheses below the estimated coefficients.
Using Model C, define the alternative hypothesis for testing the individual significance of Age.

---

Definitions:

Lodging

Accommodation in hotels, motels, or any other establishment that provides a place to stay for a short period.

Rational Choice

A theory in economics and sociology that suggests individuals choose the option that provides the highest level of satisfaction, assuming the availability of information and a clear preference set.

Opportunity Cost

The effect of spurning potential profits from various options by selecting a particular one.

Societal Choices

Decisions made by a society as a whole about the allocation of resources and priorities among different uses.