The following questions rely on the regression models based on a hedonic analysis based on field data collected from stores. The unit of analysis is Dollars (not percentages).
Regression
Pricing a carton of milk: there are many aspects of a carton of milk that a consumer may value. For the purpose of this problem, assume that the following aspects are the only factors that affect the PRICE PAID for a carton of milk.
Fat content: 2 percent fat, "Whole Fat"
Brand: "Store Brand" , Horizon Brand
Flavor: Regular flavor, Chocolate flavor
Nutrient added: No added nutrient, DHA omega nutrient
An evaluation of prices in the market reveal the following model:
Price of a Carton of Milk =
2.95 - 0.30 (Whole Fat Milk) + 0.75 (Has DHA Omega Nutrients Added) - 0.25 (Chocolate Flavor) + 0.85 (HORIZON BRAND MILK) + 1.00 (Whole Fat * Has DHA Omega Nutrients)
(Q1) What attributes does the reference product have? How much does it cost?
(Q2) What is the price of Horizon brand, 2 percent fat, chocolate milk with no DHA Omega?
(Q3)Which variable represents the interaction in this model? Interpret its meaning. Why do you think that the interaction exists? (There may be many reasons, just try to explain)