Suppose that in a certain neighborhood, the cost of a home (in thousands) is pro

Question

Suppose that in a certain neighborhood, the cost of a home (in thousands) is proportional to the size of the home in square feet. The regression equation quantifying this relationship is found to be (price) = 0.023*(size) + 39.064. You look more closely at one of the houses selected. The house is listed as having 2865.173 square feet and is listed at a price of $129.077 (thousand). the residual is 24.114. Interpret this residual in terms of the problem.

Question 2 options:

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1) The price of the house is 129.077 thousand dollars larger than than what we would expect. 2) The price of the house is 24.114 thousand dollars larger than than what we would expect. 3) The price of the house is 24.114 thousand dollars less than than what we would expect. 4) The square footage is 24.114 square feet less than than what we would expect. 5) The square footage is 24.114 square feet larger than than what we would expect.

Explanation / Answer

Note that

Residual = y(Actual) - y(expected)

So in this case,

Residual = price(Actual) - price(expected) = 24.114

Hence, as this is positive, the actual price is greater than the expected price, so

OPTION 2: The price of the house is 24.114 thousand dollars larger than than what we would expect. [ANSWER]

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