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Use the data in HPRICE1.

RAW to estimate the model


price =0 + 1sqrft + 2bdrms + u,
where price is the house price measured in thousands of dollars.
(i) Write out the results in equation form.
(ii) What is the estimated increase in price for a house with one more bedroom, holding square footage constant?
(iii) What is the estimated increase in price for a house with an additional bedroom that is 140 square feet in size?
Compare this to your answer in part (ii).
(iv) What percentage of the variation in price is explained by square footage and number of bedrooms?
(v) The first house in the sample has sqrft = 2,438 and bdrms = 4. Find the predicted selling price for this house
from the OLS regression line.
(vi) The actual selling price of the first house in the sample was $300,000 (so price =300). Find the residual for this
house. Does it suggest that the buyer underpaid or
overpaid for the house?
Dependent Variable: PRICE
Method: Least Squares
Date: 10/11/15 Time: 07:55
Sample: 1 88
Included observations: 88
Variable

Coefficient

Std. Error

t-Statistic

Prob.

SQRFT
BDRMS
C

0.128436
15.19819
-19.31500

0.013824
9.483517
31.04662

9.290506
1.602590
-0.622129

0.0000
0.1127
0.5355

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.631918
0.623258
63.04484
337845.4
-487.9989
72.96353
0.000000

Mean dependent var


S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

293.5460
102.7134
11.15907
11.24352
11.19309
1.858074

price 19.32 .128 sqrft 15.20 bdrms

n 88, R 2 .632

(i) The estimated equation is

price
(ii) Holding square footage constant,
15.20, which means $15,200.

price

sqrft

price

bdrms,
= 15.20

and so

increases by

bdrms

(iii) Now
= .128
+ 15.20
= .128(140) + 15.20 = 33.12, or $33,120.
Because the size of the house is increasing, this is a much larger effect than in (ii).
(iv) About 63.2%.
(v) The predicted price is 19.32 + .128(2,438) + 15.20(4) = 353.544, or $353,544.
(vi) From part (v), the estimated value of the home based only on square footage and number
of bedrooms is $353,544. The actual selling price was $300,000, which suggests the buyer
underpaid by some margin. But, of course, there are many other features of a house (some that we
cannot even measure) that affect price, and we have not controlled for these.