Briefly discuss what is meant by the dummy variable trap. What ...

[geodog55]

Briefly discuss what is meant by the dummy variable trap.
 
  What will be an ideal response?

Question 2

The inventory level that triggers an order is called the ________.
 
  A) lot size
  B) order quantity
  C) reorder point
  D) rate of return

[aburgess]

Answer to Question 1

In general, k distinct regions or subsets can be identified uniquely with k -1 dummy variables. If we try to use k dummy variables to represent k distinct subsets, then a linear relationship between predictor variables will result, and estimation of coefficients will be impossible. This is sometimes referred to as the dummy variable trap.

Answer to Question 2

C