Problem 1 [10 points] Predicting Prices using the Hedonic Pricing Model Assume that the base price Bo is the price of the 1,000 sq. ft. "base" home located in the Central Business District, newly built (age = 0). The coefficients of the hedonic pricing model can be interpreted in the following way. The coefficient B, shows the change in the house price due to an increase in characteristic i. For example, 33 shows the change in the home price due to an increase in the age of the home by one year. is an error that you are minimizing by choosing the estimates of B. Assume that the correct hedonic pricing model is P=Bo+Bx Additional size over 1,000 sq. ft.+ Bz x Miles from CBD + B3 Age + Suppose you performed a regression analysis and arrived at the following estimates of the hedonic pricing coefficients: B0 = $650,000, = $150, 2 = $10,000, B = $20,000. The estimate of the home price P is then P=Bo+B x Additional size over 1,000 sq. ft.+ 82 x Miles from CBD + x Age Notice that the error term vanishes due to the estimation procedure for B. What is the estimate of the price, P., of a 2,500 sq. ft. home located 6 miles away from the CBD built 10 years ago?