Question

A real estate analyst in North Carolina believes that the three main factors that influence an apartment's rent in a college town are the number of bedrooms, the number of bathrooms, and the apartment's square footage. For 40 apartments, she collects data on the rent (y, in $), the number of bedrooms (x1), the number of bathrooms (x2), and its square footage (x3). She estimates the following model: Rent = β0 + β1Bedroom + β2Bath + β3Sqft + ε. The following table shows a portion of the regression results.

	Coefficient	Standard Error	t-stat	P-value	Upper 95%	Lower 95%
Intercept	300	84.0	3.57	0.0010	130.03	470.79
Bedroom	226	60.3	A	-	103.45	348.17
Bath	89	55.9	1.59	-	−24.24	202.77
Sq Ft	0.2	B	2.22	-	0.024	0.39

Assume the number of bathrooms and the bathrooms keep the same, what is the effect on rent if the square footage increases by 1500?

a) 1756

b) 2497

c) 300

d) 452

Answer 1

The estimated regression equation is given by

= 300 + 226X1 + 89X2 + 0.2X3

Considering the partial effect of variable square footage X3 on rent and keeping all other variables constant ,

We know that,

If  X3 increases by one units will increases by 0.2 units

If  X3 increases by 1500 units will increases by (0.21500) = 300 units

Therefore c is the correct answer

c) 300