Explain why you would not want to estimate the following model: log(price_i) = b

Question

Explain why you would not want to estimate the following model: log(price_i) = beta_0 + beta_1 log(sqr ft_i) + beta_log(sqr ft^2_i) + beta_3 bdrms_i + u_i What might you estimate instead? d) Next estimate: log(price_i) = beta_0 + beta_1 log(sqr ft_i) + beta_3 log (log size_i) + u_i Compare beta_1^cap in part (d) to beta_1^cap from part (b). Comment on why it is larger or smaller in magnitude. e) Why would you not want to estimate the following model: log(price_i) = beta_0 + beta log(sqr ft_i) + beta_2bdrms_i + beta_3log(lotsize_i) + beta_4 log(colonial_i) + u_i

Explanation / Answer

c) this is because

log(Sqrft) and log(sqrft2) are dependent as

log(sqrft2) = 2 log(sqrft)

which is not good

we can use

log (price) = b0 + b1 * log(sqrft) + b2 bdrms+ui

d)

e)

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