Let’s return to the model of iPod prices on eBay that was developed in Exercise 7 in Chapter 3. That equation was:

Where:

PRICE_i = the price at which the ith iPod sold on eBay

NEW_i = a dummy variable equal to 1 if the ith iPod was new, 0 otherwise

SCRATCH_i = a dummy variable equal to 1 if the ith iPod had a minor cosmetic defect, 0 otherwise

BIDRS_i = the number of bidders on the ith iPod

a. Create and test hypotheses for the coefficients of NEW and SCRATCH at the 5-percent level.

b. In theory, the more bidders there are on a given iPod, the higher the price should be. Create and test hypotheses at the 1-percent level to see if this theory can be supported by the results.

c. Based on the hypothesis tests you conducted in parts a and b, are there any variables that you think should be dropped from the equation? Explain.

d. If you could add one variable to this equation, what would it be? Explain.

e. Test the overall significance of this equation with the F-test at the 5-percent level. Be sure to state the correct null and alternative hypotheses and to be specific with respect to your critical value.