Hope Williams, Marketing Manager of RightAid Pharmacy, Inc., wants a regression model to predict sales in the greeting card department.Her data set includes two qualitative variables: the pharmacy neighbourhood (urban, suburban, and rural), and lighting level in the greeting card department (soft, medium, and bright).The number of dummy variables needed for Hope's regression model is ___.
A)2
B)4
C)6
D)8
E)9

Question

Quizplus · Accepted Answer

To include the two qualitative variables in the regression model, we need to create dummy variables. For the variable "pharmacy neighbourhood", we need to create two dummy variables, because there are three neighborhoods. The base category can be the rural neighborhood since it is alphabetically first. Thus, we need two dummy variables.

For the variable "lighting level", we need to create two dummy variables, because there are three lighting levels. The base category can be the soft lighting level since it is also alphabetically first. Thus, we need two dummy variables.

Therefore, the total number of dummy variables needed for the regression model is 2 + 2 = 4.