# 20 - 6000 8000 SQFT Figure xr2.11(e Residuals against...

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Chapter 2, Exercise Solutions, Principles of Econometrics, 3e 20 Exercise 2.11(c) (continued) (c) Thus, we predict that the price of traditional style houses is greater than the price of houses in general when 1710 SQFT < . Traditional style houses are cheaper when 1710 SQFT > . (d) Residual plots: -400000 -300000 -200000 -100000 0 100000 200000 300000 400000 500000 0 2000 4000 6000 8000 SQFT RESID Figure xr2.11(d) Residuals against square feet – all houses -300000 -200000 -100000 0 100000 200000 300000 400000 500000 600000 0 2000 4000
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Unformatted text preview: 6000 8000 SQFT Figure xr2.11(e) Residuals against square feet for houses of traditional style The magnitude of the residuals tends to increase as housing size increases suggesting that SR3 ( ) 2 var | i e x = σ [homoskedasticity] could be violated. The larger residuals for larger houses imply the spread or variance of the errors is larger as SQFT increases. Or, in other words, there is not a constant variance of the error term for all house sizes....
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