•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 difference between the predicted number of customers on a weekday in the afternoon vs. on a weekday in the evening?

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 = 246 + 0 + 50 + 0 = 296

Predicted number of customers on a weekday in the evening = 246 + 0 + 0 + 105 = 351

Thus, the difference = 351 - 296 = 55

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