4. Logistic regression

In a study investigating the survival of financial businesses within a year, a number of businesses that were trading at the start of the previous financial year from inside and outside of London were randomly selected to see if they were still trading (not bankrupt). A response variable, Y_i, was defined as 1 if the business was still trading and 0 if the company had gone bankrupt. Two predictor variables were included in this study, the size of the main office (in m²) and its location (inside or outside of London).

a) Given that outside of London is the reference class, describe an appropriate model for this study, defining all relevant variables.

b) Given that the maximum likelihood estimates for the parameters related to the size and location of the business are 0.047 and 1.23, respectively, determine how much more/less likely it is for a business inside of London to be bankrupt compared to one outside of London for a given size.