A.     How many dummy variables does this regression use?

B.     What are the values of the dummy variables for urban, sub-urban, and rural? Assume rural is the base territory, with dummy variables equal to zero.

C.    Use Excel or other statistical software to run the regression. What are the values of á, â₁, and â₂? (Fox uses ã₁ and ã₂ instead of â₁ and â₂ for dummy variables.) Explain what each of the coefficients means.

Jacob: Fox uses both ã₁ and ã₂ as well as â₁ and â₂.

Rachel: We do this is the territory number has a quantitative value. But the territory numbers here are just indicators; they have no quantitative meaning. The regression equation is

Frequency = á + â₁ × D₁ + â₂ × D₂

In Fox’s notation, this is            Frequency = á + ã₁ × D₁ + ã₂ × D₂

For Excel 2010, here are instructions for loading the analysis toolpak:

The Analysis ToolPak is a Microsoft Excel add-in (add-in: A supplemental program that adds custom commands or custom features to Microsoft Office.) program that is available when you install Microsoft Office or Excel. To use it in Excel, however, you need to load it first.

1. Click the File tab, and then click Options.
2. Click Add-Ins, and then in the Manage box, select Excel Add-ins.
3. Click Go.
4. In the Add-Ins available box, select the Analysis ToolPak check box, and then click OK.
   1. Tip    If Analysis ToolPak is not listed in the Add-Ins available box, click Browse to locate it.
   2. If you get prompted that the Analysis ToolPak is not currently installed on your computer, click Yes to install it.
5. After you load the Analysis ToolPak, the Data Analysis command is available in the Analysis group on the Data tab.

 Note   To include Visual Basic for Application (VBA) functions for the Analysis ToolPak, you load the Analysis ToolPak - VBA add-in the same way that you load the Analysis ToolPak. In the Add-ins available box, select the Analysis ToolPak - VBA check box, and then click OK.

Once the analysis toolpak is loaded, click on Data Analysis in the Analysis group and then on Regression. The screen that comes up asks for the cells with X-values and Y-values and the cells in which the ouput should be placed.