A Realtor Wants to Predict and Compare the Prices of Homes

question 128

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 B, compute the predicted price of a 2,500-square-foot home in Location 1.

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Definitions:

Oral Contract

An agreement between parties that is spoken and not memorialized in writing, yet is fully legal and binding.

Received and Accepted

A term indicating that goods or services have been both delivered and acknowledged as meeting the terms of a contract or agreement.

Price Term

The specific conditions related to the price agreed upon in a contract for the sale of goods or services.

International Sale

The process of buying and selling goods or services across national borders, subject to international trade laws and agreements.