(a) A hotel chain decides to use data on existing hotels to determine desirable

locations for new hotels. Data on 90 hotels in the chain have been collected in

an attempt to understand operating margin. The variables are:

?

Operating margin

- the dependent variable, in %

?

Indoor pool

- whether the hotel has a heated indoor pool, Yes = 1 and

No = 0

?

Competitor rooms

- total number of competitor rooms in hotels within 3

miles

?

Distance to competitor

- miles to nearest competitor hotel

?

Office space

- amount of office space available within 3 miles, in

thousands of square feet

?

Distance to downtown

- miles to downtown (the central part of a city or

town).

Selected SPSS output is provided in Figure 2 (on the next page). Analyse the

regression results, making sure you first write out the full regression model,

including any assumptions, and the estimated model. In light of the regression

results, propose any changes you would make to the model, including any other

explanatory variables which you would consider using, or any you would remove

from the existing model. Keep in mind the hotel's objective of understanding

operating margin to inform its decisions about new hotel sites.

(20 marks)

(b) i. Explain the stepwise regression approach. What is its purpose?

ii. What is multicollinearity? Also, what problems could arise because of the

presence of multicollinearity?

(10 marks)

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