•How many dummy variables should there be in this model? •Day of the Week: Weekd

Question

•How many dummy variables should there be in this model?

•Day of the Week: Weekday or Weekend

–2 levels à 1 dummy variable

•X1: 1 if Weekend, 0 if not

•Time of Day: Morning, Afternoon, or Evening

–3 levels à 2 dummy variables

•X2: 1 if Afternoon, 0 if not

•X3: 1 if Evening, 0 if not

•Suppose you run a regression for the manager at Meijer and get the following results.

Y ?=246+120X_1+50X_2+105X_3

What is the predicted number of customers on a weekday in the afternoon?

What is the predicted number of customers on a weekend in the morning?

Explanation / Answer

There should be 3 dummy variables in this model, 1 for weekday or weekend and 2 for afternoon or not and evening or not.

Predicted number of customers on a weekday in the afternoon

Here, X1 = 0

X2 = 1

X3 = 0

Thus ,Y = 246 + 126×0 + 50×1 + 105×0 = 296

Predicted number of customers on a weekend in the morning

Here, X1 = 1

X2 = 0

X3 = 0

Thus, Y = 246 + 120×1 + 50×0 + 105×0 = 366

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