A Realtor Wants to Predict and Compare the Prices of Homes

question 86

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 test statistic for testing the joint significance of the two dummy variables Loc1 and Loc2.

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Definitions:

Cash Basis

An accounting method where revenue and expenses are recognized when cash is received or paid, rather than when earned or incurred.

External Reporting

The preparation and disclosure of financial statements and other information to parties outside the corporation, typically involving public companies.

Long-Term Assets

Assets that are expected to provide economic benefits beyond one year, including property, plant, equipment, and intangible assets.

Employee Wages

Compensation paid to employees for their labor, including salaries, hourly wages, and commissions.