Question

Question 16

Imagine that you are a realtor and are interested in selling homes by the beach. Some have ocean views and some do not. Here is a regression equation that will help you to predict the cost of a home (in $1,000s) based on the square footage (sq.ft.) and whether or not it has an ocean view. Ocean view will be a dummy variable set at 1 for an ocean view unit, and 0 for no ocean view.

Predicted price = 40 + 0.15 (sq.ft) + 50 (ocean view)

Which of the following is the predicted price home measuring 1,500 square feet with no ocean view?

a)

$315,000

b)	$2,650,000

c)

$265,000

d)

$225,000

Question 17

Imagine that you are a realtor and are interested in selling homes by the beach. Some have ocean views and some do not. Here is a regression equation that will help you to predict the cost of a home (in $1,000s) based on the square footage (sq.ft.) and whether or not it has an ocean view. Ocean view will be a dummy variable set at 1 for an ocean view unit, and 0 for no ocean view.

Predicted price = 40 + 0.15 (sq.ft) + 50 (ocean view)

Which of the following is the difference in predicted prices of the homes with and without the ocean view but with the same square footage?

a)

$40,000

b)

$90,000

c)

$500,000

d)

$50,000

Answer 1

From the given information,

Que. 16.

We have given,

Predicted price = 40 + 0.15 (sq.ft) + 50 (ocean view)

Put, sq. ft.=1500 and ocean view=0

We get,

Predicted price = 265 (in $1,000)

Predicted price = $ 265,000

Hence, Option c. is correct.

Que 17.

If we put ocean view= 1 and sq.ft.=1500 in the given equation,

We get,

Predicted price = $315,000

Hence,

Difference= $315000 - $265000

Difference= $50,000

Hence,

Option d) is correct.

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