You are interested in studying the relationship between a home’sselling price and various features of the home (this is called ahedonic price analysis). You estimate the following regressionequation, in thousands of dollars:
(house price) ?=175+12bedroom+.8square_footage - 2.5distance
Where bedroom measures the number of bedrooms in the house,square_footage is the house’s square footage, measured in hundreds(e.g. 2,200 square foot house would enter the regression as 22),and distance is the distance from downtown, measured in miles.
a. Do the signs of the coefficients match your a prioriexpectations? Explain why or why not based on your intuition.
b. Suppose you are a realtor. Use the regression results toestimate the value of a client’s home with the followingcharacteristics: 3,200 square feet; 4 bedrooms; located 6 milesfrom downtown.
c. How would your estimate change if the client decided to add a200 square-foot bedroom?
