please complete question 3.8 on house prices in Baton Rouge. In order to receive credit for this assignment, you must submit your STATA log file saved as a PDF, as well as a typed out PDF/Word document answering each sub question in detail. All portions of this assignment must be submitted electronically.
3.8 The file br2.dat contains data on 1080 houses sold in Baton Rouge, Louisiana during
mid-2005. The data include sale price and the house size in square feet. Also included
is an indicator variable TRADITIONAL indicating whether the house style is
traditional or not.
(a) For the traditional-style houses estimate the linear regression model
PRICE = B1 + B2SQFT + e. Test the null hypothesis that the slope is zero
against the alternative that it is positive, using the a = 0.01 level of significance.
Follow and show all the test steps described in Chapter 3.4.
(b) Using the linear model in (a), test the null hypothesis (Ho) that the expected price
of a house of 2000 square feet is equal to, or less than, $120,000. What is the
appropriate alternative hypothesis? Use the a=0.01 level of significance. Obtain
the p-value of the test and show its value on a sketch. What is your conclusion?
(c) Based on the estimated results from part (a), construct a 95% interval estimate of
the expected price of a house of 2000 square feet.
(d) For the traditional-style houses, estimate the quadratic regression model
PRICE = Q1 +22SQFT? +e. Test the null hypothesis that the marginal effect
of an additional square foot of living area in a home with 2000 square feet of
living space is $75 against the alternative that the effect is less than $75. Use the
a = 0.01 level of significance. Repeat the same test for a home of 4000 square
feet of living space. Discuss your conclusions.
(e) For the traditional-style houses, estimate the log-linear regression model
In(PRICE) = y1 + y2SQFT + e. Test the null hypothesis that the marginal
effect of an additional square foot of living area in a home with 2000 square
feet of living space is $75 against the alternative that the effect is less than $75.
Use the a = 0.01 level of significance. Repeat the same test for a home of 4000
square feet of living space. Discuss your conclusions.
