A Realtor Wants to Predict and Compare the Prices of Homes

question 53

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 C,what is the conclusion for testing the joint significance of the two dummy variables at the 1% significance level?

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Definitions:

Agent

An individual or entity authorized to act on behalf of another, usually in business transactions or legal matters.

Principal

The amount of money borrowed or invested, separate from interest or profit generated from it.

Partnership Act

A law that governs the rights, responsibilities, and conduct of individuals engaged in a business partnership.

Joint Business Activities

Business operations in which two or more parties work together on a project or business venture sharing profits and losses.