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:

Ratchet Wheels

Gears featuring teeth that engage with a pawl or similar device, allowing rotation in one direction while preventing it in the opposite, used in various mechanical devices.

Transmit Motion

The process of transferring movement from one part of a mechanical system to another, often involving gears, belts, or cam mechanisms.

Reciprocating Motion

A type of movement where an object or part moves back and forth along a straight line, as seen in pistons and pumps.

Mechanical Advantage

The ratio of the output force produced by a mechanical system to the input force applied, a measure of the efficiency of the system.