Question

QUESTION 1 1.5 points Save Answer Suppose a researcher collects data on houses that have been sold in a particular neighbourhood over the past year, and obtains the regressions results in the table shown below. This table is used for Questions 1-6. Dependent variable: In(Price) Regressor (1) (2) (3) (4) (5) Size 0.00042 (0.000038) In(Size) 0.69 (0.054) 0.68 (0.087) 0.57 (2.03) 0.69 (0.055) In(Size) 0.0078 (0.14) Bedrooms 0.0036 (0.037) Pool 0.082 (0.032) 0.071 (0.034) 0.071 (0.034) 0.071 (0.036) View 0.026 0.037 (0.029) 0.027 (0.028) (0.026) 0.027 (0.029) 0.071 (0.035) 0.027 (0.030) 0.0022 (0.10) Pool X View Condition 0.13 (0.045) 0.12 (0.035) 0.12 (0.035) 0.12 (0.036) 0.12 (0.035) Intercept 10.97 (0.069) 6.60 (0.39) 6.63 (0.53) 7.02 (7.50) 6.60 (0.40) Summary Statistics SER 0.102 0.098 0.099 0.099 0.099 R2 0.72 0.74 0.73 0.73 0.73 Variable definitions: Price = sale price (S); Size = house size (in square feet); Bedrooms = number of bedrooms; Pool = binary variable (1 if house has a swimming pool, otherwise); View = binary variable (1 if house has a nice view, otherwise); Condition = binary variable (1 if real estate agent reports house is in excellent condition, otherwise). A family purchases a 2000 square foot home and plans to make extensions totalling 500 square feet. The house currently has a pool, and a real estate agent has reported that the house is in excellent condition. However, the house does not have a view, and this will not change as a result of the extensions. According to the results in column (1), what is the expected DOLLAR increase in the price of the home due to the planned extensions? (Report your answer to the nearest dollar and do not include any commas or $ signs.)

Answer 1

Here we have given

A family purchases a 2000 square foot home and plans to make extensions totalling 500 square feet. The house currently has a pool, and a real estate agent has reported that the house is in excellent condition. However, the house does not have a view,

Before extention:

size =2000 ;pool=1 ;condition =excellent=1 ;View=0

After extention:

size =2500 ;pool=1 ;condition =excellent=1 ;View=0

First we have to choose which model we should use

Here we will use model 1 because in that model all explanotory variables are significant.Though For model 2 R^2 is highest (0.74) but ln(size) is not significant at 5% because p-value not less than 0.05

ln(price) =10.97 +0.00042*Size+0.082*Pool + 0.037*View +0.13*Condition

price=exp(10.97 +0.00042*Size+0.082*Pool + 0.037*View +0.13*Condition)

Before extention:

price=exp(10.97+0.00042*2000+0.082+0.037*0 +0.13*1)

=166375

After extention:

price=exp(10.97+0.00042*2500+0.082+0.037*0 +0.13*1)

=205253

expected DOLLAR increase in the price of the home due to the planned extensions=Price after extention-Price Before extention=205253 - 166375=38878

Answer:

expected DOLLAR increase in the price of the home due to the planned extensions=38878

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