A Realtor Wants to Predict and Compare the Prices of Homes

question 12

Essay

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 + β₁Size + β₂Age + ε
Model B: Price = β₀ + β₁ Size + β₃ Loc1 + β₄ Loc2 + ε
Model C: Price = β₀ + β₁Size + β₂Age + 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 difference between the price of homes with the same square footage located in Location 2 and Location 3.

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Definitions:

Egocentrism

The inability to differentiate between one's own perspective and someone else's perspective.

Concrete Operational

A stage in Piaget's theory of cognitive development, from about 7 to 11 years of age, where children can use logic to solve problems but still struggle with abstract and hypothetical concepts.

Piaget's Stages

the theory proposed by Jean Piaget that outlines the four stages of cognitive development in children: sensorimotor, preoperational, concrete operational, and formal operational.

Conservation

A cognitive ability, identified by Piaget, that enables a child to understand that substances remain the same in quantity even when their shapes change.