Instruction 13.32
One of the most common questions of prospective house buyers pertains to the average cost of heating in dollars (Y) .
To provide its customers with information on that matter, a large real estate firm used the following four variables to predict heating costs: the daily minimum outside temperature in degrees of Celsius (X₁) , the amount of insulation in cm (X₂) , the number of windows in the house (X₃) and the age of the furnace in years (X₄) . Given below are the Microsoft Excel outputs of two regression models.

-Referring to Instruction 13.32,what is your decision and conclusion for the test H₀: β₂ = 0 vs.H₁: β₂ < 0 at the α = 0.01 level of significance using Model 1?

Question

Instruction 13.32 One of the most common questions of prospective house buyers pertains to the average cost of heating in dollars (Y). To provide its customers with information on that matter, a large real estate firm used the following four variables to predict heating costs: the daily minimum outside temperature in degrees of Celsius (X 1 ), the amount of insulation in cm (X 2 ), the number of windows in the house (X 3 ) and the age of the furnace in years (X 4 ). Given below are the Microsoft Excel outputs of two regression models. -Referring to Instruction 13.32,what is your decision and conclusion for the test H₀: β₂ = 0 vs.H₁: β₂ < 0 at the α = 0.01 level of significance using Model 1? A) Reject H₀and conclude that the amount of insulation does not have a linear effect on heating costs. B) Reject H₀and conclude that the amount of insulation has a negative linear effect on heating costs. C) Do not reject H₀and conclude that the amount of insulation has a linear effect on heating cots. D) Do not reject H₀and conclude that the amount of insulation has a negative linear effect on heating costs.

Quizplus · Accepted Answer

In Model 1, the t-statistic for β₂ is -2.57 with a p-value of 0.013. Since the p-value is less than the significance level of 0.01, we reject H₀ and conclude that the amount of insulation has a significant linear effect on heating costs. Moreover, since the coefficient estimate for β₂ is negative (-88.77), we can conclude that as the amount of insulation increases, heating costs decrease. Therefore, the best choice is B.

Instruction 13.32 One of the Most Common Questions of Prospective House Buyers