3. You have collected data on the prices of diamonds at an online retailer (you

Question

3. You have collected data on the prices of diamonds at an online retailer (you can assume it's a random sample). In particular, you have the price (price) in U.S. dollars and the weight in carats (carats) for 380 diamonds which are of similar clarity and cut (2 measures of diamond quality) The following simple regression was estimated price = 0 + |carats + u which returned the following estimates (standard errors are in parentheses): price -1679.24 +5573.34 - carats (176.41)(187.14) R2-0.647 price= 4036.08 (a) What does E(u) = 0 tell you about you A? Does it tell you anything about A? (b) What is the interpretation of in the model? Does the parameter estimate, A make sense to you? Why would we expect the estimate to make sense or not? (c) Calculate the 95% confidence interval for A. Can you reject the null that A-5200?

Explanation / Answer

b) b0 , when carats =0 then price = b0 ,

= -1679.24 ,

no this does not make sense, price is negative

we expect the estimate to make sense as we are modelling real life scenarios through regression model

c)

95 % confidence interval

t* = 1.96 as n-k-1 >> 30

(5573.34 - 1.96 *187.14 , 5573.34 + 1.96 * 187.14 )

= (5206.5456, 5940.1344)

since 5200 is not in confidence interval , we can reject the null b1 = 5200

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.