SOLN_3b

Iii observe that the negative sign on bdr bdr 3354

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Unformatted text preview: urn is linear in d 2 . ˆ ˆ ˆ ˆ ˆˆˆ 7. (i) P = β0 + β1 FLR + β2 ST + β3 LOT + β4GAR + β5 LOC = 19944 + (14)(2300) + (9713)(1) + (354)(45) + (5226)(1) + (6729)(1) ≈ $89, 742 (called ‘Hedonic’ Regression) (ii) 2300 ↓ 1950 for FLR and 1 ↑ 2 for GAR ˆ ˆ Þ Pnew = P + (14)(1950 − 2300) + (5226)(2 − 1) ≈ $90, 069 So: 90, 069 − 89, 742 = $327 < $2000 Þ project is not profitable. ˆ (iii) Observe that the negative sign on BDR ( β BDR = −3354 ) implies that more bedrooms decrease sales price, P, when all other attributes are held constant. But if total floor space, FLR, is constant, this means that less floo...
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