A regression equation that predicts the price of homes in thousands of dollars is t = 24.6 + 0.055x1 - 3.6x2, where x2 is an indicator variable that represents whether the house is on a busy street (1 = yes, 0 = no). Based on this information, which of the following statements is true?
A) On average, homes that are on busy streets are worth $3600 less than homes that are not on busy streets.
B) On average, homes that are on busy streets are worth $3.60 less than homes that are not on busy streets.
C) On average, homes that are on busy streets are worth $3600 more than homes that are not on busy streets.
D) On average, homes that are on busy streets are worth $3.60 more than homes that are not on busy streets.
E) None of the above is correct.

Question

A regression equation that predicts the price of homes in thousands of dollars is  t = 24.6 + 0.055x1 - 3.6x2, where x2 is an indicator variable that represents whether the house is on a busy street (1 = yes, 0 = no). Based on this information, which of the following statements is true?
A) On average, homes that are on busy streets are worth $3600 less than homes that are not on busy streets. 
B) On average, homes that are on busy streets are worth $3.60 less than homes that are not on busy streets. 
C) On average, homes that are on busy streets are worth $3600 more than homes that are not on busy streets. 
D) On average, homes that are on busy streets are worth $3.60 more than homes that are not on busy streets. 
E) None of the above is correct.

Quizplus · Accepted Answer

The coefficient of x2 is -3.6, which means that being on a busy street decreases the predicted value of the home by $3600 on average, holding all other independent variables constant.

A Regression Equation That Predicts the Price of Homes in Thousands