Regression model, A real estate agency collected the data shown below, where , Applied Statistics

Regression model, Applied Statistics

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A real estate agency collected the data shown below, where

y = sales price of a house (in thousands of dollars)

x₁= home size (in hundreds of square feet)

x₂= rating (an overall rating for the house expressed on a scale from 1 (worst) to 10 (best).

Sales Price (y) Home Size (x₁) Rating (x2)

180.0 23 5

98.1 11 2

173.1 20 9

136.5 17 3

141.0 15 8

165.9 21 4

193.5 24 7

127.8 13 6

163.5 19 7

172.5 25 2

The agency developed the following regression model:

y = β_o+ β₁x₁+ β₂x₂+ €

a) Show why this may be a reasonable model for the relationship between the sales price and home size?

b) What factors are represented in the error term in this model? Give a specific example of these factors.

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