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State casket sales restrictions. Some states permit
Chapter 12, Problem 121E(choose chapter or problem)
State casket sales restrictions. Some states permit only licensed firms to sell funeral goods (e.g., caskets, urns) to the consumer, while other states have no restrictions. States with casket sales restrictions are being challenged in court to lift these monopolistic restrictions. A paper in the Journal of Law and Economics (Feb. 2008) used multiple regression to investigate the impact of lifting casket sales restrictions on the cost of a funeral. Data collected for a sample of 1,437 funerals were used to fit the model. A simpler version of the model estimated by the researchers is \(E(y)=\beta_{0}+\beta_{1} x_{1}+\beta_{2} x_{2}+\beta_{3} x_{1} x_{2}\), where y is the price (in dollars) of a direct burial, \(x_{1}=\{1\) if funeral home is in a restricted state, 0 if not}, and \(x_{2}=\) {1 if price includes a basic wooden casket, 0 if no casket }. The estimated equation (with standard errors in parentheses) is:
\(\hat{y}=1,432+ 793 x_{1}-252 x_{2}+261 x_{1} x_{2}, R^{2}=.78\)
\((70) \quad(134) \quad(109)\)
a. Calculate the predicted price of a direct burial with an abasic wooden casket at a funeral home in a restricted state.
b. The data include a direct burial funeral with a basic wooden casket at a funeral home in a restricted state that costs $2,200. Assuming the standard deviation of the model is $50, is this data value an outlier?
c. The data also include a direct burial funeral with an abasic wooden casket at a funeral home in a restricted state that costs $2,500. Again, assume that the standard deviation of the model is $50. Is this data value outlier?
Questions & Answers
QUESTION:
State casket sales restrictions. Some states permit only licensed firms to sell funeral goods (e.g., caskets, urns) to the consumer, while other states have no restrictions. States with casket sales restrictions are being challenged in court to lift these monopolistic restrictions. A paper in the Journal of Law and Economics (Feb. 2008) used multiple regression to investigate the impact of lifting casket sales restrictions on the cost of a funeral. Data collected for a sample of 1,437 funerals were used to fit the model. A simpler version of the model estimated by the researchers is \(E(y)=\beta_{0}+\beta_{1} x_{1}+\beta_{2} x_{2}+\beta_{3} x_{1} x_{2}\), where y is the price (in dollars) of a direct burial, \(x_{1}=\{1\) if funeral home is in a restricted state, 0 if not}, and \(x_{2}=\) {1 if price includes a basic wooden casket, 0 if no casket }. The estimated equation (with standard errors in parentheses) is:
\(\hat{y}=1,432+ 793 x_{1}-252 x_{2}+261 x_{1} x_{2}, R^{2}=.78\)
\((70) \quad(134) \quad(109)\)
a. Calculate the predicted price of a direct burial with an abasic wooden casket at a funeral home in a restricted state.
b. The data include a direct burial funeral with a basic wooden casket at a funeral home in a restricted state that costs $2,200. Assuming the standard deviation of the model is $50, is this data value an outlier?
c. The data also include a direct burial funeral with an abasic wooden casket at a funeral home in a restricted state that costs $2,500. Again, assume that the standard deviation of the model is $50. Is this data value outlier?
ANSWER:Step 1 of 4
(a)
Find the predicted value.
The regression equation of the model is,
