Question

A regression analysis of 117 homes for sale produced the following model, where price is in thousands of dollars and size is in square feet. Price = 47.84 +0.067(Size) 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 1300-square-foot house, 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? a) Explain what the slope of the line says about housing prices and house size. O A. For every additional square foot of area of a house, the price is predicted to increase by $67. O B. For every additional square foot of area of a house, the price is predicted to increase by $0.067. O C. For every $1 increase in price of a house, the size is predicted to increase by 67 square feet. O D. For every $1000 increase in price of a house, the size is predicted to increase by 0.067 square feet. 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 1300-square-foot house, 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? What is the $6000 called? O A. Slope OB. Intercept OC. Residual OD. Predicted value

Answer 1

Here' the answer to the question. please write back in case you've doubts.

a. Take care that price is in certain units => $1000

So, every unit increase in size increases price by 0.067*1000 = $67

A is correct

b.

That would be Price ^ = (47.84+ 0.067*3000)*1000 = 248.84*1000 = $248,840

Answer: $248,840

c.

A 1300 sqft house would cost on average = (47.84+ 0.067*1300)*1000 = $134,940

Now asking price should $6000 less than this i.e. $134,940 - $6000 = $128,940

Asking price = $128,940

d.

The $6000 is basically the residual

Residual is basically = y-y^ ( actual - predicted). In our case we have been given this difference of actual and predicted price i.e. $6000

Answer: C. Residual