Question

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9) A researcher has developed the following regression equation to predict the prices of luxurious Oceanside condominium units, = 40 + 0.15Size + 50View, where Price is the price of a unit (in $1,000s), Size is the square footage (in sq. feet), and View is a dummy variable taking on 1 for an ocean view unit and 0 for a bay view unit. Which of the following is the difference in predicted prices of the ocean view and bay view units with the same square footage? A) $315,000 B) $50,000 C) $265,000 D) $40,000

19) Consider the regression equation = b0 + b1xd with b1 > 0 and a dummy variable d. If d changes from 0 to 1, which of the following is true? A) The intercept increases by b0 + b1. B) The intercept increases by b1. C) The slope increases by b0 + b1. D) The slope increases by b1.

Answer 1

The regression equation to predict the prices of luxurious Oceanside condominium units is given by

Price = 40 + 0.15Size + 50View

Where,

Price is the price of a unit (in $1,000s),

Size is the square footage (in sq. feet),

View is a dummy variable taking on 1 for an ocean view unit and 0 for a bay view unit

The predicted price for ocean view is

         Price = 40 + 0.15Size + 50*1

         Price = 90 + 0.15*Size

The predicted price for bay view is

        Price = 40 + 0.15Size + 50*0

        Price = 40 + 0.15Size

Therefore, the difference in predicted prices of the ocean view and bay view units with the same square footage is

Price difference =   90 + 0.15*Size – 40 – 0.15* size

                          = 50

Hence, option B) $50,000 is correct.

The given Regression equation is

         Y = b0 + b1xd , with b1 > 0

Where, d is a dummy variable, Taking value 0 and 1

If d changes from 0 to 1, then The slope increases by b1.

Hence, option D is True