occup={"doctor","engineer","software programmer"} – thus, the variable occup has three categories. R knows it as a factor. When used in a regression model, R will make dummy variables out of it automatically, assigning first level as reference (in this instance "doctor"). Sometimes, however, a categorical variable may contain numerical values. For example, let’s say grades for a student carry numbers like 1,2,3, and so on. We can represent grades as grades={1,2,3,4}. Here, "grades" is a categorical variable with levels 1,2,3, and 4. Unless specifically stated as factor(grades), R will treat grades as a numerical continuous variable in the context of a regression equation. This distinction between factors and regressors (continuous variables that can be put in a linear regression equation) needs to be emphasized. Also, R creates dummy variables automatically; you need not specify them in the equation.