Homework SourseA vendor offers 5 different prices per unit depending on the
A vendor offers 5 different prices per unit depending on the quantity purchased. How many binary variables are needed to model this discounting scheme?
3
5
4
2
| a. | 3 | |
| b. | 5 | |
| c. | 4 | |
| d. | 2 |
Solution
When a categorical variable has k levels, you need k-1 binary variables.
Thus, here, k = 5, so we need k - 1 = 4 binary variables.
[ANSWER, OPTION C: 4]
