Hope Hernandez,Marketing Manager of People's 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 "lighting level" in Hope's regression model is ___.

Question

Quizplus · Accepted Answer

To include lighting level in the regression model, we need to create dummy variables. Since there are three levels of lighting (soft, medium, and bright), we will need to create two dummy variables. This is because including all three levels as dummy variables would create perfect multicollinearity, which invalidates the regression model. Therefore, the best choice is to have two dummy variables for lighting level, which is option B.