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Chapter 3, Problem 2CE 15 Bookmarks Show all steps: ON

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Use the data in HPRICE1.RAW to estimate the model

price = β0 + β1sqrft + β2bdrms + u,

where price is the house price measured in thousands of dollars. Snap a photo from your
(i) Write out the results in equation form. phone to post a question
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(ii) What is the estimated increase in price for a house with one more bedroom, holding square download link
footage constant?

(iii) What is the estimated increase in price for a house with an additional bedroom that is 140 888-888-8888 Text me
square feet in size? Compare this to your answer in part (ii).
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(iv) What percentage of the variation in price is explained by square footage and number of a one-time automated text message with a link to get
the app. Standard messaging rates may apply.
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.
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(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?

Step-by-step solution
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Step 1 of 9 View all solutions

(i)

The estimated model is written below:

The required estimated model can be obtained in Minitab by using below steps:

1. Go to Stat > Regression > Regression as shown in the below screenshot:

Comment

Step 2 of 9

2. The below dialog box opens. Enter the required variables corresponding to “Response” and
“Predictors” headings. The updated dialog box is shown below:

Comment

Step 3 of 9

3. Click OK to get the below output:

The estimated regression equation is:

With:

Comment

Step 4 of 9

(ii)

Holding square footage constant, the above equation can be written as:

So, estimated price increases by 15.20 which means because price measured in
thousands of dollars.

Comment

Step 5 of 9

(iii)

The equation given in part (i) is given below:

Here,

Therefore,

Comment

Step 6 of 9

So, estimated price increases by 33.12 which means because price measured in
thousands of dollars. Because the size of the house is increasing, this is a much larger effect
than in (ii).

Comment

Step 7 of 9

(iv)

Since , about of the variation in price is explained by square footage and

number of bedrooms.

Comment

Step 8 of 9

(v)

The equation given in part (i) is given below:

Here:

Therefore, the predicted price can be calculated as shown below:

The predicted price is .

Comment

Step 9 of 9

(vi)

From the above part, 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
cannot even be measured) that affect price and have not been controlled in here.

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