Data were collected from a random sample of 220 home sales from a community in 2

Question

Data were collected from a random sample of 220 home sales from a community in 2003. Let Price denote the selling price (in $1000), BDR denote the number of bedrooms, Bath denote the number of bathrooms, Hsize denote the size of the house (in square feet), Lsize denote the lot size (in square feet), Age denote the age of the house (in years), and P oor denote a binary variable that is equal to 1 if the condition of the house is reported as "poor". An estimated regression yields the following results:

Price = 119.2 + 0.485 × BDR + 23.4 × Bath + 0.156 × Hsize + 0.002 × Lsize +0.090×Age48.8×Poor

R ^2 = 0.72,SER=41.5

(a) Suppose that a homeowner converts part of an existing family room in her house into a new

bathroom. What is the expected increase in the value of the house?

(b) Suppose that a homeowner adds a new bathroom to her house, which increases the size of the house by 100 square feet. What is the expected increase in the value of the house?

(c) What is the loss in value if a homeowner lets his house run down so that its condition becomes "poor"?

Explanation / Answer

Price = 119.2 + 0.485 × BDR + 23.4 × Bath + 0.156 × Hsize + 0.002 × Lsize +0.090×Age48.8×Poor

a) Coefficient of bath = 23.4

Thus, if there is 1 more bathroom,

price increases by 23.4 or 23400 dollars

b) Coefficient of bath = 23.4

Coefficient of size of house = 0.156

Price increase = 23.4 * 1 + 0.156 * 100

P = 23.4 + 15.6

P = 39 or 39000 dollars

c) Coefficient of poor = 48.8

So, price decreases by 48800 dollars

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