One of the most common question of prospective home buyers pertains to the avera
ID: 3241694 • Letter: O
Question
One of the most common question of prospective home buyers pertains to the average cost of heating in dollars (Y). To provide its customers with information on that matter, a large real estate firm used the following 4 variables to predict heating costs: the daily minimum outside temperature in degrees of Fahrenheit (X1), the amount of insulation in inches (X2), the number of windows in the house (X3), and the age of the furnace in years (X4). Given below is a partial Excel regression output:
Referring to the table, the estimated value of the partial regression parameters ß1 means that Select one:
a. all else equal, an estimated expected $1 increase in average heating costs is associated with a decrease in the daily minimum outside temperature by 4.51 degrees
b. all else equal, a 1 degree increase in the daily minimum outside temperature results in an increase in average heating costs by $4.51
c. all else equal, a 1 degree increase in the daily minimum outside temperature results in an estimated expected decrease in average heating costs by $4.51
d. all else equal, a 1 degree increase in the daily minimum outside temperature results in an estimated expected decrease in average heating costs by 4.51%
Coefficients Standard t Stat value Lower 90% Upper 90% 421.4277 77.8614 5.4125 0.000072 284.0327 557.0227 Intercept -4.5008 0.8129 -5.5476 0.0000558 -5.9349 Temperature) 14.9029 5.0508 -2.9505 0.0000 -23.7573 5.0485 X2 (Insulation) 8.7484 X3 (Windows) 8140 13.5702 x4 (Furnace Age) 6.3780 4.1020 1.5540 0.1408Explanation / Answer
c) c. all else equal, a 1 degree increase in the daily minimum outside temperature results in an estimated expected decrease in average heating costs by $4.51 is correct
b1= -4.51
b1 represent change in y if x1 is changed by 1 unit given everything else is fixed
since b1 < 0
the heating cost decrease by 4.51 when we increase th temperature by 1 degree
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