A real estate agent wishes to estimate the monthly rental for apartments based on the size (square feet)

and the location of the apartments. She chose the following model:

y = b0 + b1x1 + b2x2 + e where:

x1 = Square footage of the apartment x2 = e 1 if located in town center 0 if not located in town center This linear regression model was fitted to a sample of size 50 to produce the following regression equation:

yn = 145 + 1.2x1 + 300x2

a. Predict the average monthly rent for an apartment located in the town center that has 1,500 square feet.

b. Predict the average monthly rent for an apartment located in the suburbs that has 1,500 square feet.

c. Interpret b2 in the context of this exercise.
Business Applications