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.

---

Definitions:

Birth Defects

Birth defects are physical or biochemical abnormalities present at birth that can result in physical, mental, or emotional disability or dysfunction.

Mutations

Changes in the DNA sequence of a cell's genome, which can lead to variations in the traits of an organism, and are a primary source of genetic diversity.

Threshold Dose-Response

A concept in toxicology that indicates the lowest dose at which a particular response or effect is observed in an organism or system.

Ionizing Radiation

A type of energy released by atoms in the form of electromagnetic waves or particles that is capable of removing electrons from atoms or molecules, potentially causing damage to living tissue.