Chapter 12.12, Problem 12.123ACB

State casket sales restrictions. Some states permit only licensed firms to sell funeral goods (e.g., caskets, urns) to the consumer, while other states have no restrictions. States with casket sales restrictions are being challenged in court to lift these monopolistic restrictions. A paper in the Journal of Law and Economics (February 2008) used multiple regression to investigate the impact of lifting casket sales restrictions on the cost of a funeral. Data collected for a sample of 1,437 funerals were used to fit the model. A simpler version of the model estimated by the researchers is E (y) = β₀+ β₁x₁+ β₂x₂+ β₃ x₁ x₂, where y is the price (in dollars) of a direct burial, x₁ = {1 if funeral home is in a restricted state. 0 if not}, and x₂ = {1 if price includes a basic wooden casket. 0 if no casket}. The estimated equation (with standard errors in parentheses) is

     $\begin{array}{cc}\hat{y}=1,432+\underset{\left(70\right)}{793}{x}_1-\underset{\left(134\right)}{252}{x}_2+\underset{\left(109\right)}{261}{x}_1{x}_2,& R^2=.78\end{array}$

1. a. Calculate the predicted price of a direct burial with a basic wooden casket at a funeral home in a restricted state.
2. b. The data include a direct burial funeral with a basic wooden casket at a funeral home in a restricted state that costs $2,200. Assuming the standard deviation of the model is $50. is this data value an outlier?
3. c. The data also include a direct burial funeral with a basic wooden casket at a funeral home in a restricted state that costs $2,500. Again, assume that the standard deviation of the model is $50. Is this data value an outlier?