Question

Used Honda Civics were selected at random from craigslist and used to derive models for Price (in dollars) dependent on Age (in years). The first model is given by: Price = 12663 - 608.25 X Age While a second model is given by: Price = 15263(0.906)Age Using correct vocabulary, numbers, and units, explain what the two different models tell us about the price of a car that is 0 years old and how the price changes with age.

Answer 1

As the age increases by one year, the price is expected to reduce by 608.25. The price of newly bought car is expected to be about 12663. The price is expected to reduce linearly. The car terminal age can be expected to be about 21years where the price goes to 0.

As the age increases by one year, the price reduces logarithmically by a factor of 0.906. The price of a new car is expected to be about 15263 and the terminal age is infinity. Which means the car will always have a value that is greater than 0.