Exhibit 17.1.A researcher has developed the following regression equation to predict the prices of luxurious Oceanside condominium units, , where
Price = the price of a unit (in $thousands),
Size = the square footage (in square feet),
View = a dummy variable taking on 1 for an ocean view unit,and 0 for a bay view unit.
Refer to Exhibit 17.1.What is the predicted difference in prices of the ocean view and bay view units with the same square footage?
A)$40,000
B)$90,000
C)$500,000
D)$50,000

Question

Exhibit 17.1.A researcher has developed the following regression equation to predict the prices of luxurious Oceanside condominium units,  , where
Price = the price of a unit (in $thousands),
Size = the square footage (in square feet),
View = a dummy variable taking on 1 for an ocean view unit,and 0 for a bay view unit.
Refer to Exhibit 17.1.What is the predicted difference in prices of the ocean view and bay view units with the same square footage?
A)$40,000 
B)$90,000 
C)$500,000 
D)$50,000

Quizplus · Accepted Answer

According to the given regression equation, the coefficient of the View variable is -0.05. This means that, holding square footage constant, the predicted difference in prices between an ocean view unit (View=1) and a bay view unit (View=0) is -$50,000. However, since the question asks for the difference in prices of the ocean view and bay view units with the same square footage, we need to ignore the coefficient of the View variable in the prediction. Therefore, the predicted difference in prices is $50,000. The correct answer is D.