7. (10pt) In our house price example, we estimate the following regression equat

Question

7. (10pt) In our house price example, we estimate the following regression equation. price = 0 + |age2 + B2age + E. . reg price age agesq Source Number of obs9,131 = 1674.82 df MS F(2, 9128) Model 387665223 2 193832612Prob > F Residual1.6461e+ 9,128 180338.775 R-squared 9,130 222759.864 Root MSE = ,1986 Adj R-squared 0.1904 : 424.66 Total 2.0338e+09 price coef. Std. Err t P>It] [95% Conf. Interval] age age sq cons 11.83924 0459152 .6186937-19.14 .00 -13.05202-10.62647 .0340695 .57 7608 1441.263 13.3442108.01 1415.105 1467.42 .006043 7.68 .000 Suppose a family bought a brand new property an this property depreciate given everything unchanged? Suppose another family bought a 5 year old property and also lives there for one year. How much does this property depreciate given everything unchanged? By comparing these two numbers, what can you conclude? d lives there for one year. How much does 0-

Explanation / Answer

Lets form the regression equation using the given coefficents as

Price = 1441.263 +0.0459age2 -11.839age

new peoperty , age = 1 year
put the value and get the price

Price = 1441.263 +0.0459*1^2 -11.839*1 = 1429.5
so it depreciates by 1429.5 dollars

now when age is 50 , the value is

Price at 50 years = 1441.263 +0.0459*(50^2) -11.839*50 = 964
Price at 51 years = 1441.263 +0.0459*(51^2) -11.839*51 = 957(approx)

so depreciates by 964-957 = 7 dollars

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