UC Davis - STA 108 Applied Statistical Methods: Regression Analysis - Sample - Q4 Regression Model
4. How do real estate agents decide on the asking price for a newly listed condominium? A computer database in a small community contains the listed selling price y (in thousands
of dollars), the amount of living area x1 (in hundreds of square feet), and the numbers of floors x2, bedrooms x3, and bathrooms x4, for n = 15 randomly selected condos currently on
the market. A realtor suspects that the square footage of living, x1, is the only important predictor and other predictors, x2, x3, x4 might be eliminated from a regression model that
has y as the response variable.
a. Write out the full regression model with all the predictors. State the assumptions.
b. Write out the reduced regression model, assuming that the realtor's hypothesis is correct (that is, x2, x3, x4 can be eliminated). Again, state the assumptions.
c. The SSEs under the full and reduced models are 469.1 and 1553, respectively. Test the realtor's hypothesis using a= 0.05. What do you conclude?
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