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We Have To Consider Different Variables While Purchasing The Used Cars

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10 views2 pages

We Have To Consider Different Variables While Purchasing The Used Cars

Uploaded by

aas4is4.314
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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We have to consider different variables while purchasing the used cars:

Some of the important variables are:


1. Car’s age ( manufacture date)
2. Mileage (in thousands of miles)
3. Brand reputation (on a scale of 1-10, with 10 being the highest)
4. Number of previous owners

Now, let's create a hypothetical multiple regression equation with


coefficients for these variables:

Price = 25000 - 1500(Age) - 100(Mileage) + 2000(Brand) - 1000(Owners) + ε

Where:
- Price is in dollars
- Age is in years
- Mileage is in thousands of miles
- Brand is on a scale of 1-10
- Owners is the number of previous owners
- ε represents the error term

1. Predicted cost of purchasing the used car


To predict the cost, we need specific values for each variable. Let's assume:
- Age: 5 years
- Mileage: 60,000 miles (60 in our equation)
- Brand reputation: 8 out of 10
- Previous owners: 2

Plugging these into our equation:

Price = 25000 - 1500(5) - 100(60) + 2000(8) - 1000(2)


= 25000 - 7500 - 6000 + 16000 - 2000
= 25,500

So, the predicted purchase price would be $25,500.

2. Variables that are not a factor:

Using the p-value method for decision-making, we typically consider


variables with p < 0.05 as statistically significant. In this case:
- Age, Mileage, and Brand are all significant factors (p < 0.05)
- The number of Owners is not a significant factor (p = 0.08 > 0.05)

This suggests that the number of previous owners may not be a crucial
factor in determining the car's price, at least in this hypothetical model.
3. Potentially nonlinear variables:
While our model assumes linear relationships, in reality, some of these
variables might have nonlinear effects:

a) Age: The depreciation rate of a car is often nonlinear, with steeper


declines in the first few years and then leveling off.

b) Mileage: Similar to age, the effect of mileage on price might not be strictly
linear. There could be certain thresholds (e.g., 100,000 miles) where the
price drops more sharply.

c) Brand reputation: The effect of brand on price might also be nonlinear. For
example, the price difference between a brand rated 9 and 10 might be
larger than the difference between a brand rated 1 and 2.

In conclusion, this analysis provides insights into the factors affecting used
car prices. However, it's important to note that this is a simplified model, and
real-world pricing would likely involve more variables and complex
relationships.

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