Question

A random sample of records of sales of homes on Montana gives the price and size (in square feet) of 117 houses. The regression analysis gives the model y=47,800+60x for predicting the price from the size of the house. a) Explain what the slope of the line says about housing prices and house size. b) What price would you predict for a 3000-square-foot house in this market? c) A real estate agent shows a potential buyer a 1200-square-foot home, saying that the asking price is $6000 less than what one would expect to pay for a house of this size. What is the asking price, and what is the $6000 called?

Answer 1

The regression equation, y = 47800 + 60x

y - dependent variable - the price of a house

x - independent variable - size of a house in square feet

a) slope- for every additional square of an area of a house, the price is predicted to increase by $60.

b) x = 3000 square foot

y = 47800 + 60 * 3000 = 227800

The predicted price for a 3000 square foot house is 227800

c) The area of the house of potential buyer house is 1200 square feet.

y = 47800 + 60 * 1200 = 119800

119800 - 6000 = 113800

Asking price = 113800

$6000 called residual.