Introduction to Econometrics 3rd Edition by James Stock, Mark Watson

Exercise 13

Data were collected from a random sample of 220 home sales from a community in 2003. Let Price denote the selling price (in $1000), BDR denote the number of bedrooms, Bath denote the number of bathrooms, Hsize denote the size of the house (in square feet), Lsize denote the lot size (in square feet). Age denote the age of the house (in years), and Poor denote a binary variable that is equal to 1 if the condition of the house is reported as "poor." An estimated regression yields
= 119.2 + 0A85BDR + 23 ABath + 0.156 Hsize + 0.002 Lsize + 0.090Age - 48.8 Poor,
2 = 0.72, SER = 41.5.
a. Suppose that a homeowner converts part of an existing family room in her house into a new bathroom. What is the expected increase in the value of the house
b. Suppose that a homeowner adds a new bathroom to her house, which increases the size of the house by 100 square feet. What is the expected increase in the value of the house
c. What is the loss in value if a homeowner lets his house run down so that its condition becomes "poor"
d. Compute the R 2 for the regression.