A researcher has developed the following regression equation to predict the prices of luxurious Oceanside condominium units, = 40 + 0.15 Size + 50 View,where Price = the price of a unit (in $1,000s),Size = the square footage (in sq.feet),View = a dummy variable taking on 1 for an ocean view unit,and 0 for a bay view unit.Which of the following is the difference in predicted 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

A researcher has developed the following regression equation to predict the prices of luxurious Oceanside condominium units,  = 40 + 0.15 Size + 50 View,where Price = the price of a unit (in $1,000s),Size = the square footage (in sq.feet),View = a dummy variable taking on 1 for an ocean view unit,and 0 for a bay view unit.Which of the following is the difference in predicted 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

For bay view units, View = 0. Therefore, the regression equation becomes: 
Price = 40 + 0.15 Size + 50(0) = 40 + 0.15 Size

For ocean view units, View = 1. Therefore, the regression equation becomes:
Price = 40 + 0.15 Size + 50(1) = 90 + 0.15 Size

The difference in predicted prices between ocean view and bay view units with the same square footage is the difference in the intercepts (40 and 90).

Therefore, the answer is $50,000.

A Researcher Has Developed the Following Regression Equation to Predict