19 - Chapter 2, Exercise Solutions, Principles of...

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Chapter 2, Exercise Solutions, Principles of Econometrics, 3e 19 Exercise 2.11 (continued) (b) The estimated equation for all houses is n 60,861 92.747 PRICE SQFT =− + The coefficient 92.747 suggests house price increases by approximately $92.75 for each additional square foot of house size. The intercept, if taken literally, suggests a house with zero square feet would cost $60,861, a meaningless value. The model should not be accepted as a serious one in the region of zero square feet. 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 0 2,000 4,000 6,000 8,000 SQFT PRICE Figure xr2.11(c) Fitted line for Exercise 2.11(b) (c) The estimated equation for traditional style houses is n 28,408 73.772 PRICE SQFT + The slope of 73.772 suggests that house price increases by approximately $73.77 for each
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