To explain what determines the price of air conditioners, B.T. Ratchford obtaine
ID: 1169037 • Letter: T
Question
To explain what determines the price of air conditioners, B.T. Ratchford obtained the following regression results based on a sample of 19 air conditioners;
Y(hat)i= -68.236 + 0.023X2i + 19729X3i + 7.653X4iR2 = 0.84
se= (0.005) (8.992) (3.082)
where:
Y= the price, in dollars
X2= The BTU rating of air conditioner
X3= The energy efficiency ratio
X4=The number of settings
se= Standard errors
a. Interpret the regression results.
b. Do the results make economic sense?
d. Would you accept the null hypothesis that the three explanatory variables explain a substantial variation in the prices of air conditioners? Show clearly your calculations.
Explanation / Answer
The factors other than X2, X3 and X4 change Y by -68.236.
If BTU rating increases,other factors remaining constant, price will increase by 0.023.
If energy efficiency ratio increase, X2 and X4 remaining constant, price will increase by 19729.
If number of settings increseas, X2 and X3 remaining constant, price will increase by 7.653
b) Yes the results make economic sense
c. t ratio for BTU = (X*- 0.023)/0.005