Question

A manufacturer of copying machines wishes to predict the number of copiers sold per week based on previous sales in each of three regions: Region A, Region B, and Region C. How many dummy variables should be used to represent the qualitative variable - sales region.?????

Answer 1

Here three qualitative explanatory variables as Region A , Region B, and Region C

Therefore we need two Dummy variables D₂ and D₃ . See the following:

If there are three explanatory variables in the model with two dummy variables D₂ and D₃ then they

will describe three levels, e.g., groups A, B, and C.

The levels of dummy variables are as follows:

1. D₂ = 0 , D₃ = 0, if the observation is from group A
2.1. D₂ = 1 , D₃ = 0, if the observation is from group B
3. 1. D₂ = 0 , D₃ = 1, if the observation is from group C