Exercise 17-21 Algo Compute the predicted price of a house with ocean views and

Question

Exercise 17-21 Algo

Compute the predicted price of a house with ocean views and square footage of 1,500 and 2,500, respectively. (Round your final answers to the nearest whole number.)

Compute the predicted price of a house without ocean views and square footage of 1,500 and 2,500, respectively. (Round your final answers to the nearest whole number.)

House price y is estimated as a function of the square footage of a house x; a dummy variable d that equals 1 if the house has ocean views and 0 otherwise; and a product of this dummy and the square footage xd. The estimated house price, measured in $1,000s, is given by = 71 + 0.13x + 49d + 0.05xd.

Explanation / Answer

y = 71 + 0.13x + 49d + 0.05

A) For ocean view house, d = 1

For 1500 square feet,

y = 71 + 0.13x1500 + 49x1 + 0.05x1500x1

= $ 390 thousand

For x = 2500 square feet,

y = 71 + 0.13x2500 + 49x1 + 0.05x2500x1

=$ 564 thousand

B) for house without ocean vie, d = 0

y = 71+0.13x

For x = 1500 square feet,

y = 71+0.13x1500

= $266 thousand

For x = 2500 square feet,

y = 71 + 0.13x2500

= $396 thousand

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