Chapter 14

Simple Linear Regression

Learning Objectives

1. Understand how regression analysis can be used to develop an equation that estimates
mathematically how two variables are related.

2. Understand the differences between the regression model, the regression equation, and the estimated
regression equation.

3. Know how to fit an estimated regression equation to a set of sample data based upon the least-
squares method.

4. Be able to determine how good a fit is provided by the estimated regression equation and compute
the sample correlation coefficient from the regression analysis output.

5. Understand the assumptions necessary for statistical inference and be able to test for a significant
relationship.

6. Know how to develop confidence interval estimates of y given a specific value of x in both the case
of a mean value of y and an individual value of y.

7. Learn how to use a residual plot to make a judgement as to the validity of the regression
assumptions.

8. Know the definition of the following terms:

independent and dependent variable

simple linear regression
regression model
regression equation and estimated regression equation
scatter diagram
coefficient of determination
standard error of the estimate
confidence interval
prediction interval
residual plot

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Chapter 14

Solutions:

1 a.

16
14
12
10
8
y

6
4
2
0
0 1 2 3 4 5 6
x

b. There appears to be a positive linear relationship between x and y.

c. Many different straight lines can be drawn to provide a linear approximation of the
relationship between x and y; in part (d) we will determine the equation of a straight line
that “best” represents the relationship according to the least squares criterion.

xi 15 yi 40
d. x  3 y  8
n 5 n 5

 ( xi  x )( yi  y )  26  ( xi  x ) 2  10

( xi  x )( yi  y ) 26
b1    2.6
( xi  x ) 2 10

b0  y  b1 x  8  (2.6)(3)  0.2

yˆ  0.2  2.6 x

e. yˆ  0.2  2.6(4)  10.6

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 Simple Linear Regression

2. a.

60

50

40

30
y

20

10

0
0 5 10 15 20 25
x

b. There appears to be a negative linear relationship between x and y.

c. Many different straight lines can be drawn to provide a linear approximation of the
relationship between x and y; in part (d) we will determine the equation of a straight line
that “best” represents the relationship according to the least squares criterion.

xi 55 yi 175

d. x   11 y   35
n 5 n 5

 ( xi  x )( yi  y )  540  ( xi  x ) 2  180

( xi  x )( yi  y ) 540
b1    3
( xi  x ) 2 180

b0  y  b1 x  35  (3)(11)  68

yˆ  68  3 x

e. yˆ  68  3(10)  38

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Chapter 14

3. a.

30

25

20

15
y

10

0
0 5 10 15 20 25
x

xi 50 yi 83
b. x   10 y   16.6
n 5 n 5

 ( xi  x )( yi  y )  171  ( xi  x ) 2  190

( xi  x )( yi  y ) 171
b1    0.9
( xi  x ) 2 190

b0  y  b1 x  16.6  (0.9)(10)  7.6

yˆ  7.6  0.9 x

c. yˆ  7.6  0.9(6)  13

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 Simple Linear Regression

4. a.

70

60

50
% Management

40

30

20

10

0
40 45 50 55 60 65 70 75
% Working

b. There appears to be a positive linear relationship between the percentage of women working in the
five companies (x) and the percentage of management jobs held by women in that company (y)

c. Many different straight lines can be drawn to provide a linear approximation of the
relationship between x and y; in part (d) we will determine the equation of a straight line
that “best” represents the relationship according to the least squares criterion.

xi 300 yi 215

d. x   60 y   43
n 5 n 5

 ( x i  x )( y i  y )  624  ( x i  x ) 2  480

( xi  x )( yi  y ) 624
b1    1.3
( xi  x )2 480

b0  y  b1 x  43  1.3(60)  35

yˆ  35  1.3 x

e. yˆ  35  1.3 x  35  1.3(60)  43%

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Chapter 14

5. a.

25

Number of Defective Parts

20

15

10

0
0 10 20 30 40 50 60
Line Speed (feet per minute)

b. There appears to be a negative relationship between line speed (feet per minute) and the number of
defective parts.

c. Let x = line speed (feet per minute) and y = number of defective parts.

xi 280 yi 136

x   35 y   17
n 8 n 8

( xi  x )( yi  y )  300 ( xi  x ) 2  1000

( xi  x )( yi  y ) 300
b1    .3
( xi  x )2 1000

b0  y  b1 x  17  ( .3)(35)  27.5

yˆ  27.5  .3x

d. yˆ  27.5  .3 x  27.5  .3(25)  20

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 Simple Linear Regression

6. a.

90
80
70
60
50
Win%

40
30
20
10
0
4 5 6 7 8 9
Yds/Att

b. The scatter diagram indicates a positive linear relationship between x = average number of passing
yards per attempt and y = the percentage of games won by the team.

c. x  xi / n  680 / 10  6.8 y  yi / n  464 / 10  46.4

 ( xi  x )( yi  y )  121.6  ( xi  x ) 2  7.08

( xi  x )( yi  y ) 121.6
b1    17.1751
 ( xi  x ) 2 7.08

b0  y  b1 x  46.4  (17.1751)(6.8)  70.391

yˆ  70.391  17.1751x

d. The slope of the estimated regression line is approximately 17.2. So, for every increase of one yard
in the average number of passes per attempt, the percentage of games won by the team increases by
17.2%.

e. With an average number of passing yards per attempt of 6.2, the predicted percentage of games won
is ŷ = -70.391 + 17.175(6.2) = 36%. With a record of 7 wins and 9 loses, the percentage of wins that
the Kansas City Chiefs won is 43.8 or approximately 44%. Considering the small data size, the
prediction made using the estimated regression equation is not too bad.

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Chapter 14

7. a.

150
140
Annual Sales ($1000s) 130
120
110
100
90
80
70
60
50
0 2 4 6 8 10 12 14
Years of Experience

b. Let x = years of experience and y = annual sales ($1000s)

xi 70 yi 1080

x  7 y   108
n 10 n 10

 ( xi  x )( yi  y )  568 ( xi  x ) 2  142

( xi  x )( yi  y ) 568
b1   4
( xi  x ) 2 142

b0  y  b1 x  108  (4)(7)  80

y  80  4 x

c. y  80  4 x  80  4(9)  116 or $116,000

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 Simple Linear Regression

8. a.
4.5

4.0

Satisfaction 3.5

3.0

2.5

2.0
2.0 2.5 3.0 3.5 4.0 4.5
Speed of Execution

b. The scatter diagram indicates a positive linear relationship between x = speed of execution rating and
y = overall satisfaction rating for electronic trades.

c. x   xi / n  36.3 / 11  3.3 y   yi / n  35.2 / 11  3.2

 ( x i  x )( y i  y )  2.4  ( x i  x ) 2  2.6

( xi  x )( yi  y ) 2.4
b1    .9077
( xi  x ) 2 2.6

b0  y  b1 x  3.2  (.9077)(3.3)  .2046

yˆ  .2046  .9077 x

d. The slope of the estimated regression line is approximately .9077. So, a one unit increase in the
speed of execution rating will increase the overall satisfaction rating by approximately .9 points.

e. The average speed of execution rating for the other brokerage firms is 3.4. Using this as the new
value of x for [Link], we can use the estimated regression equation developed in part (c) to
estimate the overall satisfaction rating corresponding to x = 3.4.

yˆ  .2046  .9077 x  .2046  .9077(3.4)  3.29

Thus, an estimate of the overall satisfaction rating when x = 3.4 is approximately 3.3.

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Chapter 14

9. a.
160
140

Annual Revenue ($millions)

120
100
80
60
40
20
0
0 2 4 6 8 10 12 14
Cars in Service (1000s)

b. The scatter diagram indicates a positive linear relationship between x = cars in service (1000s) and y
= annual revenue ($millions).

c. x   xi / n  43.5 / 6  7.25 y   yi / n  462 / 6  77

 ( xi  x )( yi  y )  734.6  ( xi  x ) 2  56.655

( xi  x )( yi  y ) 734.6
b1    12.9662
( xi  x )2 56.655

b0  y  b1 x  77  (12.9662)(7.25)   17.005

yˆ   17.005  12.966 x

d. For every additional 1000 cars placed in service annual revenue will increase by 12.966 ($millions)
or $12,966,000. Therefor every additional car placed in service will increase annual revenue by
$12,966.

e. yˆ   17.005  12.966 x   17.005  12.966(11)  125.621

A prediction of annual revenue for Fox Rent A Car is approximately $126 million.

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 Simple Linear Regression

10. a.

1400

1200
% Gain in Options Value

1000

800

600

400

200

0
0 100 200 300 400 500 600
% Increase in Stock Price

b. The scatter diagram indicates a positive linear relationship between x = percentage increase in the
stock price and y = percentage gain in options value. In other words, options values increase as stock
prices increase.

c. x   xi / n  2939 / 10  293.9 y   yi / n  6301 / 10  630.1

 ( x i  x )( y i  y )  314, 501.1  ( x i  x ) 2  115,842.9

( xi  x )( yi  y ) 314,501.1
b1    2.7149
 ( xi  x ) 2 115,842.9

b0  y  b1 x  630.1  (2.1749)(293.9)  167.81

yˆ   167.81  2.7149 x

d. The slope of the estimated regression line is approximately 2.7. So, for every percentage increase in
the price of the stock the options value increases by 2.7%.

e. The rewards for the CEO do appear to be based upon performance increases in the stock value.
While the rewards may seem excessive, the executive is being rewarded for his/her role in increasing
the value of the company. This is why such compensation schemes are devised for CEOs by boards
of directors. A compensation scheme where an executive got a big salary increase when the
company stock went down would be bad. And, if the stock price for a company had gone down
during the periods in question, the value of the CEOs options would also go down.

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Chapter 14

11. a.
85

80
Overall Score 75

70

65

60

55

50
400 600 800 1000 1200 1400
Price ($)

b. The scatter diagram indicates a positive linear relationship between x = price ($) and y = overall
score.

c. x   xi / n  10, 200 / 10  1020 y   yi / n  755 / 10  75.5

 ( xi  x )( yi  y )  11, 900  ( xi  x ) 2  561, 000

( xi  x )( yi  y ) 11,900
b1    .021212
( xi  x )2 561,000

b0  y  b1 x  75.5  (.021212)(1020)  53.864

yˆ  53.864  .0212 x

d. The slope of .0212 means that spending an additional $100 in price will increase the overall score by
approximately 2 points.

e. A prediction of the overall score is yˆ  53.864  .0212 x  53.864  .0212(700)  68.7

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 Simple Linear Regression

12. a.
190

170

Entertainment ($)
150

130

110

90

70
70 90 110 130 150 170
Hotel Room Rate ($)

b. The scatter diagram indicates a positive linear relationship between x = hotel room rate and the
amount spent on entertainment.

c. x   xi / n  945 / 9  105 y   yi / n  1134 / 9  126

 ( x i  x )( y i  y )  4237  ( x i  x ) 2  4100

( xi  x )( yi  y ) 4237
b1    1.0334
( xi  x ) 2 4100

b0  y  b1 x  126  (1.0334)(105)  17.49

yˆ  17.49  1.0334 x

d. With a value of x = $128, the predicted value of y for Chicago is

yˆ  17.49  1.0334 x  17.49  1.0334(128)  150

Note: In The Wall Street Journal article the entertainment expense for Chicago was $146. Thus, the
estimated regression equation provided a good estimate of entertainment expenses for Chicago.

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Chapter 14

13. a.

30.0

Reasonable Amount of Itemized

25.0
Deductions ($1000s)
20.0

15.0

10.0

5.0

0.0
0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0
Adjusted Gross Income ($1000s)

b. Let x = adjusted gross income and y = reasonable amount of itemized deductions

xi 399 yi 97.1

x   57 y   13.8714
n 7 n 7

 ( xi  x )( yi  y )  1233.7 ( xi  x ) 2  7648

( xi  x )( yi  y ) 1233.7
b1    0.1613
( xi  x ) 2 7648

b0  y  b1 x  13.8714  (0.1613)(57)  4.6773

y  4.68  016
. x

c. y  4.68  016
. x  4.68  016
. (52.5)  13.08 or approximately $13,080.

The agent's request for an audit appears to be justified.

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 Simple Linear Regression

14. a.
9
8

Number of Days Absent

7
6
5
4
3
2
1
0
0 5 10 15 20
Distance to Work (miles)

The scatter diagram indicates a negative linear relationship between x = distance to work and y =
number of days absent.

b. x   xi / n  90 / 10  9 y   yi / n  50 / 10  5

 ( xi  x )( y i  y )   95  ( xi  x ) 2  276

( xi  x )( yi  y ) 95
b1    .3442
 ( xi  x ) 2 276

b0  y  b1 x  5  (  .3442)(9)  8.0978

yˆ  8.0978  .3442 x

c. A prediction of the number of days absent is yˆ  8.0978  .3442(5)  6.4 or approximately 6 days.

15. a. The estimated regression equation and the mean for the dependent variable are:

yi  0.2  2.6 xi y 8

The sum of squares due to error and the total sum of squares are

SSE   ( yi  yi ) 2  12.40 SST   ( yi  y ) 2  80

Thus, SSR = SST - SSE = 80 - 12.4 = 67.6

b. r2 = SSR/SST = 67.6/80 = .845

The least squares line provided a very good fit; 84.5% of the variability in y has been explained by
the least squares line.

c. rxy  .845  .9192

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Chapter 14

16. a. The estimated regression equation and the mean for the dependent variable are:

yˆi  68  3 x y  35

The sum of squares due to error and the total sum of squares are

SSE   ( yi  yˆ i ) 2  230 SST   ( yi  y ) 2  1850

Thus, SSR = SST - SSE = 1850 - 230 = 1620

b. r2 = SSR/SST = 1620/1850 = .876

The least squares line provided an excellent fit; 87.6% of the variability in y has been explained by
the estimated regression equation.

c. rxy  .876  .936

Note: the sign for r is negative because the slope of the estimated regression equation is negative.
(b1 = -3)

17. The estimated regression equation and the mean for the dependent variable are:

yˆi  7.6  .9 x y  16.6

The sum of squares due to error and the total sum of squares are

SSE  ( yi  yˆ i ) 2  127.3 SST  ( yi  y ) 2  281.2

Thus, SSR = SST - SSE = 281.2 – 127.3 = 153.9

r2 = SSR/SST = 153.9/281.2 = .547

We see that 54.7% of the variability in y has been explained by the least squares line.

rxy  .547  .740

18. a. x   xi / n  600 / 6  100 y   yi / n  330 / 6  55

SST =  ( y i  y ) 2  1800 SSE =  ( y i  yˆ i ) 2  287.624

SSR = SST – SSR = 1800 – 287.624 = 1512.376

SSR 1512.376
b. r2    .84
SST 1800

c. r  r 2  .84  .917

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 Simple Linear Regression

19. a. The estimated regression equation and the mean for the dependent variable are:

ŷ = 80 + 4x y = 108

The sum of squares due to error and the total sum of squares are

SSE  ( yi  yˆi )2  170 SST  ( yi  y )2  2442

Thus, SSR = SST - SSE = 2442 - 170 = 2272

b. r2 = SSR/SST = 2272/2442 = .93

We see that 93% of the variability in y has been explained by the least squares line.

c. rxy  .93  .96

20. a. x  xi / n  160 / 10  16 y  yi / n  55,500 / 10  5550

 ( xi  x )( y i  y )   31, 284  ( xi  x ) 2  21.74

( xi  x )( yi  y ) 31, 284
b1    1439
( xi  x ) 2 21.74

b0  y  b1 x  5550  ( 1439)(16)  28,574

yˆ  28,574  1439 x

b. SST = 52,120,800 SSE = 7,102,922.54

SSR = SST – SSR = 52,120,800 - 7,102,922.54 = 45,017,877

r 2 = SSR/SST = 45,017,877/52,120,800 = .864

The estimated regression equation provided a very good fit.

c. yˆ  28,574  1439 x  28,574  1439(15)  6989

Thus, an estimate of the price for a bike that weighs 15 pounds is $6989.

xi 3450 yi 33, 700

21. a. x   575 y   5616.67
n 6 n 6

 ( xi  x )( yi  y )  712,500 ( xi  x ) 2  93, 750

( xi  x )( yi  y ) 712,500
b1    7.6
( xi  x ) 2 93, 750

b0  y  b1 x  5616.67  (7.6)(575)  1246.67

y  1246.67  7.6 x

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Chapter 14

b. $7.60

c. The sum of squares due to error and the total sum of squares are:

SSE   ( yi  yˆ i ) 2  233,333.33 SST   ( yi  y ) 2  5, 648,333.33

Thus, SSR = SST - SSE = 5,648,333.33 - 233,333.33 = 5,415,000

r2 = SSR/SST = 5,415,000/5,648,333.33 = .9587

We see that 95.87% of the variability in y has been explained by the estimated regression equation.

d. y  1246.67  7.6 x  1246.67  7.6(500)  $5046.67

22. a. SSE = 1043.03

y  yi / n  462 / 6  77 SST = ( yi  y ) 2  10,568

SSR = SST – SSR = 10,568 – 1043.03 = 9524.97

SSR 9524.97
r2    .9013
SST 10,568

b. The estimated regression equation provided a very good fit; approximately 90% of the variability in
the dependent variable was explained by the linear relationship between the two variables.

c. r  r 2  ..9013  .95

This reflects a strong linear relationship between the two variables.

23. a. s2 = MSE = SSE / (n - 2) = 12.4 / 3 = 4.133

b. s  MSE  4.133  2.033

c.  ( xi  x ) 2  10

s 2.033
sb1    0.643
( xi  x ) 2
10

b1 2.6
d. t   4.044
sb1 .643

Using t table (3 degrees of freedom), area in tail is between .01 and .025

p-value is between .02 and .05

Using Excel or Minitab, the p-value corresponding to t = 4.04 is .0272.

Because p-value   , we reject H0: 1 = 0

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 Simple Linear Regression

e. MSR = SSR / 1 = 67.6

F = MSR / MSE = 67.6 / 4.133 = 16.36

Using F table (1 degree of freedom numerator and 3 denominator), p-value is between .025 and .05

Using Excel or Minitab, the p-value corresponding to F = 16.36 is .0272.

Because p-value   , we reject H0: 1 = 0

Source Sum Degrees Mean

of Variation of Squares of Freedom Square F p-value
Regression 67.6 1 67.6 16.36 .0272
Error 12.4 3 4.133
Total 80.0 4

24. a. s2 = MSE = SSE/(n - 2) = 230/3 = 76.6667

b. s  MSE  76.6667  8.7560

c.  ( xi  x ) 2  180

s 8.7560
sb1    0.6526
( xi  x ) 2
180

b1 3
d. t   4.59
sb1 .653

Using t table (3 degrees of freedom), area in tail is less than .01; p-value is less than .02

Using Excel or Minitab, the p-value corresponding to t = -4.59 is .0193.

Because p-value   , we reject H0: 1 = 0

e. MSR = SSR/1 = 1620

F = MSR/MSE = 1620/76.6667 = 21.13

Using F table (1 degree of freedom numerator and 3 denominator), p-value is less than .025

Using Excel or Minitab, the p-value corresponding to F = 21.13 is .0193.

Because p-value   , we reject H0: 1 = 0

Source Sum Degrees Mean

of Variation of Squares of Freedom Square F p-value
Regression 1620 1 1620 21.13 .0193
Error 230 3 76.6667
Total 1850 4

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Chapter 14

25. a. s2 = MSE = SSE/(n - 2) = 127.3/3 = 42.4333

s  MSE  42.4333  6.5141

b.  ( xi  x ) 2  190

s 6.5141
sb1    0.4726
( xi  x ) 2
190

b1 .9
t   1.90
sb1 .4726

Using t table (3 degrees of freedom), area in tail is between .05 and .10

p-value is between .10 and .20

Using Excel or Minitab, the p-value corresponding to t = 1.90 is .1530.

Because p-value >  , we cannot reject H0: 1 = 0; x and y do not appear to be related.

c. MSR = SSR/1 = 153.9 /1 = 153.9

F = MSR/MSE = 153.9/42.4333 = 3.63

Using F table (1 degree of freedom numerator and 3 denominator), p-value is greater than .10

Using Excel or Minitab, the p-value corresponding to F = 3.63 is .1530.

Because p-value >  , we cannot reject H0: 1 = 0; x and y do not appear to be related.

26. a. In the statement of exercise 18, ŷ = 23.194 + .318x

In solving exercise 18, we found SSE = 287.624

s 2  MSE = SSE/(n -2) =287.624 / 4  71.906

s  MSE  71.906  8.4797

( x  x ) 2
 14,950

s 8.4797
sb1    .0694
(x  x ) 2
14,950

b1 .318
t   4.58
sb1 .0694

Using t table (4 degrees of freedom), area in tail is between .005 and .01

p-value is between .01 and .02

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 Simple Linear Regression

Using Excel, the p-value corresponding to t = 4.58 is .010.

Because p-value   , we reject H0: 1 = 0; there is a significant relationship between price and
overall score

b. In exercise 18 we found SSR = 1512.376

MSR = SSR/1 = 1512.376/1 = 1512.376

F = MSR/MSE = 1512.376/71.906 = 21.03

Using F table (1 degree of freedom numerator and 4 denominator), p-value is between .025 and .01

Using Excel, the p-value corresponding to F = 11.74 is .010.

Because p-value   , we reject H0: 1 = 0

c.
Source Sum Degrees Mean
of Variation of Squares of Freedom Square F p-value
Regression 1512.376 1 1512.376 21.03 .010
Error 287.624 4 71.906
Total 1800 5

27. a.
75

70
Stress Toleracne

65

60

55

50
50 60 70 80 90 100 110
Average Annual Salary ($1000s)

The scatter diagram suggests a negative linear relationship between the two variables.

b. Let x = stress tolerance and y = average annual salary ($)

xi 866 yi 660

x   86.6 y   66
n 10 n 10

 ( xi  x )( yi  y )   367.2 ( xi  x )  1742.4
2

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Chapter 14

( xi  x )( yi  y ) 367.2
b1    .2107
( xi  x )2 1742.4

b0  y  b1 x  66  ( .2107)(86.6)  84.2466

yˆ  84.2466  .2107 x

c. SSE = ( yi  yˆ i )2  51.7949 SST = ( yi  y )2 = 129.18

Thus, SSR = SST - SSE = 129.18 – 51.7949 = 77.3851

MSR = SSR/1 = 77.3851

MSE = SSE/(n - 2) = 129.18/8 = 6.4744

F = MSR / MSE = 77.3851/6.4744 = 11.9525

Using F table (1 degree of freedom numerator and 8 denominator), p-value is less than .01

Using Excel, the p-value corresponding to F = 11.9525 is .0086.

Because p-value   , we reject H0: 1 = 0

Average annual salary and stress tolerance are related.

d. r2 = SSR/SST = 77.3851/129.18 = .5990

The estimated regression equation provided a reasonably good fit; we should feel comfortable using
the estimated regression equation to estimate the stress level tolerance given the average annual
salary as long as the value of the average annual salary is within the range of the current data.

e. The relationship between the average annual salary and stress tolerance is counterintuitive because
one would think that jobs that pay more are most likely going to require more time and will likely
involve a more stressful environment. One possibility is that the limited size of the data set is
masking a much different relationship that might be more evident with a larger sample of
occupations. And, the stress tolerance rating used in this study may not necessarily be a good
indicator of the actual stress.

28. The sum of squares due to error and the total sum of squares are

SSE  ( yi  yˆ i ) 2  1.4379 SST  ( yi  y ) 2  3.5800

Thus, SSR = SST - SSE = 3.5800 – 1.4379 = 2.1421

s2 = MSE = SSE / (n - 2) = 1.4379 / 9 = .1598

s  MSE  .1598  .3997

We can use either the t test or F test to determine whether speed of execution and overall satisfaction
are related.

We will first illustrate the use of the t test.

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 Simple Linear Regression

( xi  x ) 2  2.6
s .3997
sb1    .2479
( xi  x ) 2
2.6

b1 .9077
t   3.66
sb
1
.2479

Using t table (9 degrees of freedom), area in tail is less than .005; p-value is less than .01

Using Excel or Minitab, the p-value corresponding to t = 3.66 is .000.

Because p-value   , we reject H0: 1 = 0

Because we can reject H0: 1 = 0 we conclude that speed of execution and overall satisfaction are
related.

Next we illustrate the use of the F test.

MSR = SSR / 1 = 2.1421

F = MSR / MSE = 2.1421 / .1598 = 13.4

Using F table (1 degree of freedom numerator and 9 denominator), p-value is less than .01

Using Excel or Minitab, the p-value corresponding to F = 13.4 is .000.

Because p-value   , we reject H0: 1 = 0

Because we can reject H0: 1 = 0 we conclude that speed of execution and overall satisfaction are
related.

The ANOVA table is shown below.

Source Sum Degrees Mean

of Variation of Squares of Freedom Square F p-value
Regression 2.1421 1 2.1421 13.4 .000
Error 1.4379 9 .1598
Total 3.5800 10

29. SSE = ( yi  yˆ i ) 2  233,333.33 SST = ( yi  y ) 2 = 5,648,333.33

Thus, SSR = SST – SSE = 5,648,333.33 –233,333.33 = 5,415,000

MSE = SSE/(n - 2) = 233,333.33/(6 - 2) = 58,333.33

MSR = SSR/1 = 5,415,000

F = MSR / MSE = 5,415,000 / 58,333.25 = 92.83

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Chapter 14

Source of Sum Degrees of Mean

Variation of Squares Freedom Square F p-value
Regression 5,415,000.00 1 5,415,000 92.83 .0006
Error 233,333.33 4 58,333.33
Total 5,648,333.33 5

Using F table (1 degree of freedom numerator and 4 denominator), p-value is less than .01

Using Excel or Minitab, the p-value corresponding to F = 92.83 is .0006.

Because p-value   , we reject H0: 1 = 0. Production volume and total cost are related.

30. SSE = ( yi  yˆi )2  1043.03 SST = ( yi  y )2 = 10,568

Thus, SSR = SST – SSE = 10,568 – 1043.03 = 9524.97

s2 = MSE = SSE/(n-2) = 1043.03/4 = 260.7575

s  260.7575  16.1480

( xi  x )2 = 56.655

s 16.148
sb1    2.145
(x i  x) 2
56.655

b1 12.966
t   6.045
sb1 2.145

Using t table (4 degrees of freedom), area in tail is less than .005

p-value is less than .01

Using Excel, the p-value corresponding to t = 6.045 is .004.

Because p-value   , we reject H0: 1 = 0

There is a significant relationship between cars in service and annual revenue.

31. SST = 52,120,800 SSE = 7,102,922.54

SSR = SST – SSR = 52,120,800 - 7,102,922.54 = 45,017,877

MSR = SSR/1 = 45,017,877

MSE = SSE/(n - 2) = 7,102,922.54/8 = 887,865.3

F = MSR / MSE = 45,017,877/887,865.3 = 50.7

Using F table (1 degree of freedom numerator and 8 denominator), p-value is less than .01

Using Excel, the p-value corresponding to F = 32.015 is .000.

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 Simple Linear Regression

Because p-value   , we reject H0: 1 = 0

Weight and price are related.

32. a. s = 2.033

x 3 ( xi  x )2  10

1 ( x*  x )2 1 (4  3) 2
s yˆ *  s   2.033   1.11
n ( xi  x ) 2 5 10

b. ŷ * = .2 + 2.6 x * = .2 + 2.6(4) = 10.6

yˆ *  t /2 s yˆ*

10.6  3.182 (1.11) = 10.6  3.53

or 7.07 to 14.13

1 ( x*  x )2 1 (4  3)2
c. spred  s 1    2.033 1    2.32
n ( xi  x )2 5 10

d. ŷ *  t /2 spred

10.6  3.182 (2.32) = 10.6  7.38

or 3.22 to 17.98

33. a. s = 8.7560

b. x  11 ( xi  x )2  180

1 ( x*  x )2 1 (8  11)2
s yˆ *  s   8.7560   4.3780
n ( xi  x ) 2
5 180

yˆ *  0.2  2.6 x*  0.2  2.6(4)  10.6

yˆ *  t /2 s yˆ*

44  3.182 (4.3780) = 44  13.93

or 30.07 to 57.93

1 ( x*  x ) 2 1 (8  11) 2
c. spred  s 1    8.7560 1    9.7895
n ( xi  x ) 2
5 180

d. ŷ *  t /2 spred

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Chapter 14

44  3.182(9.7895) = 44  31.15

or 12.85 to 75.15

34. s = 6.5141

x  10 ( xi  x )2  190

1 ( x*  x )2 1 (12  10)2
s yˆ*  s   6.5141   3.0627
n ( xi  x )2 5 190

yˆ *  7.6  .9 x*  7.6  .9(12)  18.40

yˆ *  t /2 s yˆ*

18.40  3.182(3.0627) = 18.40  9.75

or 8.65 to 28.15

1 ( x*  x ) 2 1 (12  10)2
spred  s 1    6.5141 1    7.1982
n ( xi  x )2 5 190

ŷ *  t /2 spred

18.40  3.182(7.1982) = 18.40  22.90

or -4.50 to 41.30

The two intervals are different because there is more variability associated with predicting an
individual value than there is a mean value.

35. a. yˆ *  2090.5  581.1x *  2090.5  581.1(3)  3833.8

b. s  MSE  21,284  145.89 s = 145.89

x  3.2 ( xi  x )2  0.74

1 ( x*  x ) 2 1 (3  3.2)2
s yˆ*  s   145.89   68.54
n ( xi  x )2 6 0.74

yˆ *  t /2 s yˆ*

3833.8  2.776 (68.54) = 3833.8  190.27

or $3643.53 to $4024.07

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 Simple Linear Regression

1 ( x*  x ) 2 1 (3  3.2)2
c. spred  s 1    145.89 1    161.19
n ( xi  x )2 6 0.74

ŷ *  t /2 spred

3833.8  2.776 (161.19) = 3833.8  447.46

or $3386.34 to $4281.26

d. As expected, the prediction interval is much wider than the confidence interval. This is due to the
fact that it is more difficult to predict the starting salary for one new student with a GPA of 3.0 than
it is to estimate the mean for all students with a GPA of 3.0.

1 ( x*  x ) 2 1 (9  7)2
36. a. s yˆ*  s   4.6098   1.6503
n ( xi  x ) 2
10 142

yˆ *  t /2 s yˆ*

yˆ *  80  4 x *  80  4(9)  116

116  2.306(1.6503) = 116  3.8056

or 112.19 to 119.81 ($112,190 to $119,810)

1 ( x*  x )2 1 (9  7)2
b. spred  s 1    4.6098 1    4.8963
n ( xi  x ) 2
10 142

ŷ *  t /2 spred

116  2.306(4.8963) = 116  11.2909

or 104.71 to 127.29 ($104,710 to $127,290)

c. As expected, the prediction interval is much wider than the confidence interval. This is due to the
fact that it is more difficult to predict annual sales for one new salesperson with 9 years of
experience than it is to estimate the mean annual sales for all salespersons with 9 years of
experience.

37. a. x  57 ( xi  x )2  7648

s2 = 1.88 s = 1.37

1 ( x*  x )2 1 (52.5  57)2
s yˆ *  s   1.37   0.52
n ( xi  x ) 2 7 7648

yˆ *  t /2 s yˆ*

ŷ * = 4.68 + 0.16 x * = 4.68 + 0.16(52.5) = 13.08

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Chapter 14

13.08  2.571 (.52) = 13.08  1.34

or 11.74 to 14.42 or $11,740 to $14,420

b. spred = 1.47

13.08  2.571 (1.47) = 13.08  3.78

or 9.30 to 16.86 or $9,300 to $16,860

c. Yes, $20,400 is much larger than anticipated.

d. Any deductions exceeding the $16,860 upper limit could suggest an audit.

38. a. ŷ * = 1246.67 + 7.6(500) = $5046.67

b. x  575 ( xi  x )2  93,750

s2 = MSE = 58,333.33 s = 241.52

1 ( x*  x )2 1 (500  575)2
spred  s 1    241.52 1    267.50
n ( xi  x )2 6 93,750

ŷ *  t /2 spred

5046.67  4.604 (267.50) = 5046.67  1231.57

or $3815.10 to $6278.24

c. Based on one month, $6000 is not out of line since $3815.10 to $6278.24 is the prediction interval.
However, a sequence of five to seven months with consistently high costs should cause concern.

39. a. With x * = 89, yˆ *  17.49  1.0334 x*  17.49  1.0334(89)  $109.46

b. s2 = MSE = SSE/(n – 2) = 1541.4/7 = 220.2

s  220.2  14.391

1 ( x*  x ) 2 1 (89  105)2
s yˆ *  s   14.8391   6.1819
n ( xi  x ) 2
9 4100

yˆ *  t.025 s yˆ *  109.46  2.365(6.1819) = 109.46  14.6202

or $94.84 to $124.08

c. yˆ *  17.49  1.0334 x  17.49  1.0334(128)  $149.77

1 ( x*  x ) 2 1 (128  105)2
spred  s 1    14.8391 1    16.525
n ( xi  x )2 9 4100

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 Simple Linear Regression

ŷ *  t /2 spred

149.77  2.365(16.525) = 149.77  39.08

or $110.69 to $188.85

40. a. 9

b. ŷ = 20.0 + 7.21x

c. 1.3626

d. SSE = SST - SSR = 51,984.1 - 41,587.3 = 10,396.8

MSE = 10,396.8/7 = 1,485.3

F = MSR / MSE = 41,587.3 /1,485.3 = 28.00

Using F table (1 degree of freedom numerator and 7 denominator), p-value is less than .01

Using Excel or Minitab, the p-value corresponding to F = 28.00 is .0011.

Because p-value   = .05, we reject H0: B1 = 0.

Selling price is related to annual gross rents.

e. ŷ = 20.0 + 7.21(50) = 380.5 or $380,500

41. a. ŷ = 6.1092 + .8951x

b1  B1 .8951  0
b. t   6.01
sb1 .149

Using the t table (8 degrees of freedom), area in tail is less than .005
p-value is less than .01

Using Excel or Minitab, the p-value corresponding to t = 6.01 is .0003.

Because p-value   = .05, we reject H0: B1 = 0

Maintenance expense is related to usage.

c. ŷ = 6.1092 + .8951(25) = 28.49 or $28.49 per month

42 a. ŷ = 80.0 + 50.0x

b. 30

c. F = MSR / MSE = 6828.6/82.1 = 83.17

Using F table (1 degree of freedom numerator and 28 denominator), p-value is less than .01

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Chapter 14

Using Excel or Minitab, the p-value corresponding to F = 83.17 is .000.

Because p-value <  = .05, we reject H0: B1 = 0.

Annual sales is related to the number of salespersons.

d. ŷ = 80 + 50 (12) = 680 or $680,000

43. a.
120.0

100.0
2012 Percentage

80.0

60.0

40.0

20.0

0.0
0.0 20.0 40.0 60.0 80.0 100.0 120.0
2011 Percentage

b. There appears to be a positive linear relationship between the two variables.

c. The Excel output is shown below.

Regression Statistics
Multiple R 0.8702
R Square 0.7572
Adjusted R Square 0.7456
Standard Error 11.5916
Observations 23

ANOVA
df SS MS F Significance F
Regression 1 8798.2391 8798.2391 65.4802 6.85277E-08
Residual 21 2821.6609 134.3648
Total 22 11619.9

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 Simple Linear Regression

Coefficients Standard Error t Stat P-value

Intercept 7.3880 8.2125 0.8996 0.3785
2011 Percentage 0.9276 0.1146 8.0920 6.85277E-08

ŷ = 7.3880 + 0.9276(2011 Percentage)

d. Significant relationship: p-value = 0.000 < α = .05.

e. r 2 = .7572; a good fit.

44. a. Scatter diagram:

1000
900
800
700
600
Price ($)

500
400
300
200
100
0
45 50 55 60 65 70
Weight (oz)

b. There appears to be a negative linear relationship between the two variables. The heavier helmets
tend to be less expensive.

c. The Minitab output is shown below:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 462761 462761 54.90 0.000
Weight 1 462761 462761 54.90 0.000
Error 16 134865 8429
Lack-of-Fit 8 122784 15348 10.16 0.002
Pure Error 8 12080 1510
Total 17 597626

Model Summary

S R-sq R-sq(adj) R-sq(pred)

91.8098 77.43% 76.02% 68.22%

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Chapter 14

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 2044 226 9.03 0.000
Weight -28.35 3.83 -7.41 0.000 1.00

Regression Equation

Price = 2044 - 28.35 Weight

Fits and Diagnostics for Unusual Observations

Std
Obs Price Fit Resid Resid
7 900.0 655.2 244.8 3.03 R

R Large residual

d. Significant relationship: p-value = .000 <  = .05

e. r2 = 0.774; A good fit

xi 70 yi 76
45. a. x   14 y   15.2
n 5 n 5

 ( xi  x )( yi  y )  200  ( xi  x ) 2  126

( xi  x )( yi  y ) 200
b1    1.5873
( xi  x ) 2 126

b0  y  b1 x  15.2  (1.5873)(14)  7.0222

yˆ  7.02  1.59 x

b. The residuals are 3.48, -2.47, -4.83, -1.6, and 5.22

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 Simple Linear Regression

c.

Residuals 2

-2

-4

-6
0 5 10 15 20 25
x

With only 5 observations it is difficult to determine if the assumptions are satisfied.

However, the plot does suggest curvature in the residuals that would indicate that the error
term assumptions are not satisfied. The scatter diagram for these data also indicates that the
underlying relationship between x and y may be curvilinear.

d. s 2  23.78

1 ( xi  x ) 2 1 ( x  14) 2
hi     i
n ( xi  x ) 2
5 126

The standardized residuals are 1.32, -.59, -1.11, -.40, 1.49.

e. The standardized residual plot has the same shape as the original residual plot. The
curvature observed indicates that the assumptions regarding the error term may not be
satisfied.

46. a. yˆ  2.32  .64 x

b.

4
3
2
1
Residuals

0
-1
-2
-3
-4
0 2 4 6 8 10
x

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Chapter 14

The assumption that the variance is the same for all values of x is questionable. The variance appears
to increase for larger values of x.

47. a. Let x = advertising expenditures and y = revenue

yˆ  29.4  1.55 x

b. SST = 1002 SSE = 310.28 SSR = 691.72

MSR = SSR / 1 = 691.72

MSE = SSE / (n - 2) = 310.28/ 5 = 62.0554

F = MSR / MSE = 691.72/ 62.0554= 11.15

Using F table (1 degree of freedom numerator and 5 denominator), p-value is between .01 and .025

Using Excel or Minitab, the p-value corresponding to F = 11.15 is .0206.

Because p-value   = .05, we conclude that the two variables are related.

c.

10

0
Residuals

-5

-10

-15
25 35 45 55 65
Predicted Values

d. The residual plot leads us to question the assumption of a linear relationship between x and y. Even
though the relationship is significant at the .05 level of significance, it would be extremely
dangerous to extrapolate beyond the range of the data.

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 Simple Linear Regression

48. a. yˆ  80  4 x

2
Residuals

-2

-4

-6

-8
0 2 4 6 8 10 12 14
x

b. The assumptions concerning the error term appear reasonable.

49. a. A portion of the Excel output follows:

Regression Statistics
Multiple R 0.8696
R Square 0.7561
Adjusted R Square 0.7257
Standard Error 78.7819
Observations 10

ANOVA
Significance
df SS MS F F
Regression 1 153961.6801 153961.6801 24.8062 0.0011
Residual 8 49652.7199 6206.5900
Total 9 203614.4

Standard
Coefficients Error t Stat P-value
Intercept -197.9583 187.6950 -1.0547 0.3224
Rent ($) 1.0699 0.2148 4.9806 0.0011

ŷ = ˗197.9583 + 1.0699 Rent ($)

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Chapter 14

b.
100

50

0
700 800 900 1000 1100
Residual

‐50

‐100

‐150

‐200
Rent ($)

c. The residual plot leads us to question the assumption of a linear relationship between the average
asking rent and the monthly mortgage. Therefore, even though the relationship is very significant (p-
value = .0011), using the estimated regression equation to make predictions of the monthly mortgage
beyond the range of the data is not recommended.

50. a. The Minitab output follows:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 497.2 497.2 3.12 0.137
x 1 497.2 497.2 3.12 0.137
Error 5 795.7 159.1
Total 6 1292.9

Model Summary

S R-sq R-sq(adj) R-sq(pred)

12.6151 38.45% 26.15% 0.00%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 66.1 32.1 2.06 0.094
x 0.402 0.228 1.77 0.137 1.00

Regression Equation

y = 66.1 + 0.402 x

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 Simple Linear Regression

Fits and Diagnostics for Unusual Observations

Std
Obs y Fit Resid Resid
1 145.00 120.42 24.58 2.11 R

R Large residual

b.

2.5

2.0

1.5
Standardized Residual

1.0

0.5

0.0

-0.5

-1.0

110 115 120 125 130 135 140

Fitted Value

The standardized residual plot indicates that the observation x = 135, y = 145 may be an outlier;
note that this observation has a standardized residual of 2.11.

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Chapter 14

c. The scatter diagram is shown below

150

145

140

135

130

125
y

120

115

110

105

100
100 110 120 130 140 150 160 170 180

The scatter diagram also indicates that the observation x = 135, y = 145 may be an outlier; the
implication is that for simple linear regression an outlier can be identified by looking at the scatter
diagram.

51. a. The Minitab output is shown below:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 40.779 40.779 4.03 0.091
x 1 40.779 40.779 4.03 0.091
Error 6 60.721 10.120
Lack-of-Fit 5 52.721 10.544 1.32 0.576
Pure Error 1 8.000 8.000
Total 7 101.500

Model Summary

S R-sq R-sq(adj) R-sq(pred)

3.18123 40.18% 30.21% 0.00%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 13.00 2.40 5.43 0.002
x 0.425 0.212 2.01 0.091 1.00

Regression Equation

y = 13.00 + 0.425 x

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 Simple Linear Regression

Fits and Diagnostics for Unusual Observations

Obs y Fit Resid Std Resid

7 24.00 18.10 5.90 2.00 R
8 19.00 22.35 -3.35 -2.16 R X

R Large residual
X Unusual X

The standardized residuals are: -1.00, -.41, .01, -.48, .25, .65, -2.00, -2.16

The last two observations in the data set appear to be outliers since the standardized residuals for
these observations are 2.00 and -2.16, respectively.

b. Using Minitab, we obtained the following leverage values:

.28, .24, .16, .14, .13, .14, .14, .76

MINITAB identifies an observation as having high leverage if hi > 6/n; for these data, 6/n =
6/8 = .75. Since the leverage for the observation x = 22, y = 19 is .76, Minitab would identify
observation 8 as a high leverage point. Thus, we conclude that observation 8 is an influential
observation.

c.

30

25

20

15
y

10

0
0 5 10 15 20 25
x

The scatter diagram indicates that the observation x = 22, y = 19 is an influential observation.

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Chapter 14

52. a.
120

100

Program Expenses ($)

80

60

40

20

0
0 5 10 15 20 25
Fundraising Expenses (%)

The scatter diagram does indicate potential influential observations. For example, the 22.2%
fundraising expense for the American Cancer Society and the 16.9% fundraising expense for the St.
Jude Children’s Research Hospital look like they may each have a large influence on the slope of the
estimated regression line. And, with a fundraising expense of on 2.6%, the percentage spend on
programs and services by the Smithsonian Institution (73.7%) seems to be somewhat lower than
would be expected; thus, this observeraton may need to be considered as a possible outlier

b. A portion of the Minitab output follows:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 408.4 408.35 7.31 0.027
Fundraising Expenses (%) 1 408.4 408.35 7.31 0.027
Error 8 446.9 55.86
Total 9 855.2

Model Summary

S R-sq R-sq(adj) R-sq(pred)

7.47387 47.75% 41.22% 29.38%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 90.98 3.18 28.64 0.000
Fundraising Expenses (%) -0.917 0.339 -2.70 0.027 1.00

Regression Equation

Program Expenses (%) = 90.98 - 0.917 Fundraising Expenses (%)

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 Simple Linear Regression

Fits and Diagnostics for Unusual Observations

Program
Expenses
Obs (%) Fit Resid Std Resid
3 73.70 88.60 -14.90 -2.13 R
5 71.60 70.62 0.98 0.21 X

R Large residual
X Unusual X

R denotes an observation with a large standardized residual.

X denotes an observation whose X value gives it large leverage.

c. The slope of the estimtaed regression equation is -0.917. Thus, for every 1% increase in the amount
spent on fundraising the percentage spent on program expresses will decrease by .917%; in other
words, just a little under 1%. The negative slope and value seem to make sense in the context of this
problem situation.

d. The Minitab output in part (b) indicates that there are two unusual observations:

 Observation 3 (Smithsonian Institution) is an outlier because it has a large standardized residual.

 Observation 5 (American Cancer Society) is an influential observation becasuse has high

leverage.

Although fundraising expenses for the Smithsonian Institution are on the low side as compared to
most of the other super-sized charities, the percentage spent on program expenses appears to be
much lower than one would expect. It appears that the Smithsonian’s administrative expenses are too
high. But, thinking about the expenses of running a large museum like the Smithsonian, the
percetage spent on administrative expenses may not be unreasonable and is just due to the fact that
operating costs for a museum are in general higher than for some other types of organizations. The
very large value of fundraising expenses for the American Cancer Society suggests that this
obervation has a large influence on the estiamted regresion equation. The following Minitab output
shows the results if this observatoin is deleted from the original data.

The regression equation is

Program Expenses (%) = 91.3 - 1.00 Fundraising Expenses (%)

Predictor Coef SE Coef T P

Constant 91.256 3.654 24.98 0.000
Fundraising Expenses (%) -1.0026 0.5590 -1.79 0.116

S = 7.96708 R-Sq = 31.5% R-Sq(adj) = 21.7%

The y-intercept has changed slightly, but the slope has changed from -.917 to -1.00.

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Chapter 14

53. a.

140

120

100
Debt/GDP (%)

80

60

40

20

0
0 100 200 300 400 500 600
Gold Value ($B)

b. There appears to be a positive relationship between the two variables. But, observation 9 (U.S.)
appears to be an observation with high leverage and may be very influential in terms of fitting a
linear model to the data.

c. The Minitab output follows.

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 2522 2522 2.46 0.161
Gold Value 1 2522 2522 2.46 0.161
Error 7 7186 1027
Total 8 9708

Model Summary

S R-sq R-sq(adj) R-sq(pred)

32.0394 25.98% 15.40% 0.00%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 49.1 15.1 3.25 0.014
Gold Value 0.1230 0.0785 1.57 0.161 1.00

Regression Equation

Debt = 49.1 + 0.1230 Gold Value

Fits and Diagnostics for Unusual Observations

Obs Debt Fit Resid Std Resid

9 93.2 109.0 -15.8 -1.27 X

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 Simple Linear Regression

X Unusual X

d. The Minitab output identifies observation 9 as an observation whose x value gives it large leverage.

e. Looking at the scatter diagram in part (a) it looks like observation 9 will have a lot of influence on
the estimated regression equation. To investigate this we can simply drop the observation from the
data set and fit a new estimated regression equation. The Minitab output we obtained follows.

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 3324 3324.2 3.60 0.107
Gold Value 1 3324 3324.2 3.60 0.107
Error 6 5542 923.6
Total 7 8866

Model Summary

S R-sq R-sq(adj) R-sq(pred)

30.3907 37.49% 27.08% 0.00%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 30.8 19.8 1.55 0.172
Gold Value 0.342 0.180 1.90 0.107 1.00

Regression Equation

Debt = 30.8 + 0.342 Gold Value

Note that the slope of the estimated regression equation is now .342 as compared to a value of .123
when this observation is included. Thus, we see that this observation has a big impact on the value of
the slope of the fitted line and hence we would say that it is an influential observation.

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Chapter 14

54. a.
2,500

2,000
Value ($ millions)

1,500

1,000

500

0
0 100 200 300 400 500
Revenue ($ millions)

The scatter diagram does indicate potential outliers and/or influential observations. For example, the
New York Yankees have both the hightest revenue and value, and appears to be an influential
observation. The Los Angeles Dodgers have the second highest value and appears to be an outlier.

b. A portion of the Excel output follows:

Regression Statistics
Multiple R 0.9062
R Square 0.8211
Adjusted R Square 0.8148
Standard Error 165.6581
Observations 30

ANOVA
df SS MS F Significance F
Regression 1 3527616.598 3527616.6 128.5453 5.616E-12
Residual 28 768392.7687 27442.599
Total 29 4296009.367

Upper
Coefficients Standard Error t Stat P-value Lower 95% 95%
Intercept -601.4814 122.4288 -4.9129 3.519E-05 -852.2655 -350.6973
Revenue ($
millions) 5.9271 0.5228 11.3378 5.616E-12 4.8562 6.9979

Thus, the estimated regression equation that can be used to predict the team’s value given the value
of annual revenue is ŷ = -601.4814 + 5.9271 Revenue.

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 Simple Linear Regression

c. The Standard Residual value for the Los Angeles Dodgers is 4.7 and should be treated as an outlier.
To determine if the New York Yankees point is an influential observation we can remove the
observation and compute a new estimated regression equation. The results show that the estimated
regresssion equation is ŷ = -449.061 + 5.2122 Revenue. The following two scatter diagrams
illustrate the small change in the estimated regression equation after removing the observation for
the New York Yankees. These scatter diagrams show that the effect of the New York Yankees
observation on the regression results is not that dramatic.

Scatter Diagram Including the New York Yankees Observation

Scatter Diagram Excluding the New York Yankees Observation

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Chapter 14

55. No. Regression or correlation analysis can never prove that two variables are causally related.

56. The estimate of a mean value is an estimate of the average of all y values associated with the same x.
The estimate of an individual y value is an estimate of only one of the y values associated with a
particular x.

57. The purpose of testing whether 1  0 is to determine whether or not there is a significant
relationship between x and y. However, rejecting 1  0 does not necessarily imply a good fit. For
example, if 1  0 is rejected and r2 is low, there is a statistically significant relationship between x
and y but the fit is not very good.

58. a.
1420
1400
1380
1360
S&P 500

1340
1320
1300
1280
1260
12200 12400 12600 12800 13000 13200 13400
DJIA

b. A portion of the Minitab output is shown below:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 22146 22145.6 239.89 0.000
DJIA 1 22146 22145.6 239.89 0.000
Error 13 1200 92.3
Total 14 23346

Model Summary

S R-sq R-sq(adj) R-sq(pred)

9.60811 94.86% 94.46% 93.61%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant -669 131 -5.12 0.000
DJIA 0.1573 0.0102 15.49 0.000 1.00

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 Simple Linear Regression

Regression Equation

S&P = -669 + 0.1573 DJIA

c. Using the F test, the p-value corresponding to F = 239.89 is .000. Because the p-value   =.05, we
reject H 0 : 1  0 ; there is a significant relationship.

d. With R-Sq = 94.9%, the estimated regression equation provided an excellent fit.

e. yˆ  669.0  .15727(DJIA)=  669.0  .15727(13,500)  1454

f. The DJIA is not that far beyond the range of the data. With the excellent fit provided by the
estimated regression equation, we should not be too concerned about using the estimated regression
equation to predict the S&P500.

59. a.
350.0

300.0
Selling Price ($1,000s)

250.0

200.0

150.0

100.0

50.0

0.0
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50
Size (1,000's sq. ft.)

The scatter diagram suggests that there is a linear relationship between size and selling price and that
as size increases, selling price increases.

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Chapter 14

b. The Excel output appears below:

The estimated regression equation is: ŷ = -59.016 + 115.091x

c. Significant relationship: p-value = .000 <  = .05

d. ŷ = -59.016 + 115.091(square feet) = -59.016 + 115.091(2.0) = 171.166 or approximately $171,166.

e. The estimated regression equation should provide a good estimate because r2 = 0.897.

f. This estimated equation might not work well for other cities. Housing markets are also driven by
other factors that influence demand for housing, such as job market and quality-of-life factors. For
example, because of the existence of high tech jobs and its proximity to the ocean, the house prices
in Seattle, Washington might be very different from the house prices in Winston, Salem, North
Carolina.

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 Simple Linear Regression

60. a.

The scatter diagram indicates a positive linear relationship between the two variables. Online
universities with higher retention rates tend to have higher graduation rates.

b. The Minitab output follows:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 1224.3 1224.29 22.02 0.000
RR(%) 1 1224.3 1224.29 22.02 0.000
Error 27 1501.0 55.59
Lack-of-Fit 21 979.5 46.64 0.54 0.865
Pure Error 6 521.5 86.92
Total 28 2725.3

Model Summary

S R-sq R-sq(adj) R-sq(pred)

7.45610 44.92% 42.88% 38.68%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 25.42 3.75 6.79 0.000
RR(%) 0.2845 0.0606 4.69 0.000 1.00

Regression Equation

GR(%) = 25.42 + 0.2845 RR(%)

Fits and Diagnostics for Unusual Observations

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Chapter 14

Obs GR(%) Fit Resid Std Resid

2 25.00 39.93 -14.93 -2.04 R
3 28.00 26.56 1.44 0.22 X

R Large residual
X Unusual X

R denotes an observation with a large standardized residual.

X denotes an observation whose X value gives it large leverage.

c. Because the p-value = .000 < α =.05, the relationship is significant.

d. The estimated regression equation is able to explain 44.9% of the variability in the graduation rate
based upon the linear relationship with the retention rate. It is not a great fit, but given the type of
data, the fit is reasonably good.

e. In the Minitab output in part (b), South University is identified as an observation with a large
standardized residual. With a retention rate of 51% it does appear that the graduation rate of 25% is
low as compared to the results for other online universities. The president of South University should
be concerned after looking at the data. Using the estimated regression equation, we estimate that the
gradation rate at South University should be 25.4 + .285(51) = 40%.

f. In the Minitab output in part (b), the University of Phoenix is identified as an observation whose x
value gives it large influence. With a retention rate of only 4%, the president of the University of
Phoenix should be concerned after looking at the data.

61. The Minitab output is shown below:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 860.1 860.05 47.62 0.000
Usage 1 860.1 860.05 47.62 0.000
Error 8 144.5 18.06
Total 9 1004.5

Model Summary

S R-sq R-sq(adj) R-sq(pred)

4.24962 85.62% 83.82% 75.21%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 10.53 3.74 2.81 0.023
Usage 0.953 0.138 6.90 0.000 1.00

Regression Equation

Expense = 10.53 + 0.953 Usage

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 Simple Linear Regression

Variable Setting
Usage 30

Fit SE Fit 95% CI 95% PI

39.1312 1.49251 (35.6894, 42.5729) (28.7447, 49.5176)

a. ŷ = 10.53 + .953 Usage

b. Since the p-value corresponding to F = 47.62 = .000 <  = .05, we reject H0: 1 = 0.

c. The 95% prediction interval is 28.74 to 49.52 or $2874 to $4952

d. Yes, since the expected expense is ŷ = 10.53 + .953(30) = 39.12 or $3912.

62. a. The Minitab output is shown below:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 25.130 25.130 11.33 0.028
Speed 1 25.130 25.130 11.33 0.028
Error 4 8.870 2.217
Lack-of-Fit 2 4.870 2.435 1.22 0.451
Pure Error 2 4.000 2.000
Total 5 34.000

Model Summary

S R-sq R-sq(adj) R-sq(pred)

1.48909 73.91% 67.39% 36.69%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 22.17 1.65 13.42 0.000
Speed -0.1478 0.0439 -3.37 0.028 1.00

Regression Equation

Defects = 22.17 - 0.1478 Speed

Variable Setting
Speed 50

Fit SE Fit 95% CI 95% PI

14.7826 0.896327 (12.2940, 17.2712) (9.95703, 19.6082)

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Chapter 14

b. Since the p-value corresponding to F = 11.33 = .028 <  = .05, the relationship is significant.

c. r 2 = .739; a good fit. The least squares line explained 73.9% of the variability in the number of
defects.

d. Using the Minitab output in part (a), the 95% confidence interval is 12.294 to 17.2712.

63. a.

9
8
7
6
5
Days

4
3
2
1
0
0 5 10 15 20

Distance

There appears to be a negative linear relationship between distance to work and number of days
absent.

b. The Minitab output is shown below:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 32.699 32.699 19.67 0.002
Distance 1 32.699 32.699 19.67 0.002
Error 8 13.301 1.663
Lack-of-Fit 7 11.301 1.614 0.81 0.698
Pure Error 1 2.000 2.000
Total 9 46.000

Model Summary

S R-sq R-sq(adj) R-sq(pred)

1.28941 71.09% 67.47% 57.04%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

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 Simple Linear Regression

Constant 8.098 0.809 10.01 0.000

Distance -0.3442 0.0776 -4.43 0.002 1.00

Regression Equation

Days = 8.098 - 0.3442 Distance

Variable Setting
Distance 5

Fit SE Fit 95% CI 95% PI

6.37681 0.512485 (5.19502, 7.55860) (3.17717, 9.57646)

c. Since the p-value corresponding to F = 419.67 is .002 <  = .05. We reject H0 : 1 = 0.

There is a significant relationship between the number of days absent and the distance to work.

d. r2 = .711. The estimated regression equation explained 71.1% of the variability in y; this is a
reasonably good fit.

e. The 95% confidence interval is 5.19502 to 7.5586 or approximately 5.2 to 7.6 days.

64. a. The Minitab output is shown below:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 312050 312050 54.75 0.000
Age 1 312050 312050 54.75 0.000
Error 8 45600 5700
Lack-of-Fit 3 6150 2050 0.26 0.852
Pure Error 5 39450 7890
Total 9 357650

Model Summary

S R-sq R-sq(adj) R-sq(pred)

75.4983 87.25% 85.66% 79.52%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 220.0 58.5 3.76 0.006
Age 131.7 17.8 7.40 0.000 1.00

Regression Equation

Cost = 220.0 + 131.7 Age

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Chapter 14

Variable Setting
Age 4

Fit SE Fit 95% CI 95% PI

746.667 29.7769 (678.001, 815.332) (559.515, 933.818)

b. Since the p-value corresponding to F = 54.75 is .000 <  = .05, we reject H0: 1 = 0.

Maintenance cost and age of bus are related.

c. r2 = .873. The least squares line provided a very good fit.

d. The 95% prediction interval is 559.515 to 933.818 or $559.52 to $933.82

65. a. The Minitab output is shown below:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 3249.7 3249.72 57.42 0.000
Hours 1 3249.7 3249.72 57.42 0.000
Error 8 452.8 56.60
Lack-of-Fit 7 340.3 48.61 0.43 0.828
Pure Error 1 112.5 112.50
Total 9 3702.5

Model Summary

S R-sq R-sq(adj) R-sq(pred)

7.52312 87.77% 86.24% 82.23%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 5.85 7.97 0.73 0.484
Hours 0.830 0.109 7.58 0.000 1.00

Regression Equation

Points = 5.85 + 0.830 Hours

Variable Setting
Hours 95

Fit SE Fit 95% CI 95% PI

84.6533 3.66780 (76.1953, 93.1112) (65.3529, 103.954)

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 Simple Linear Regression

b. Since the p-value corresponding to F = 57.42 is .000 <  = .05, we reject H0: 1 = 0.

Total points earned is related to the hours spent studying.

c. 84.65 points

d. The 95% prediction interval is 65.3529 to 103.954

66. a. The Minitab output is shown below:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 50.26 50.255 7.08 0.029
S&P 500 1 50.26 50.255 7.08 0.029
Error 8 56.78 7.098
Lack-of-Fit 7 45.26 6.466 0.56 0.776
Pure Error 1 11.52 11.520
Total 9 107.04

Model Summary

S R-sq R-sq(adj) R-sq(pred)

2.66413 46.95% 40.32% 5.96%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 0.275 0.900 0.31 0.768
S&P 500 0.950 0.357 2.66 0.029 1.00

Regression Equation

Horizon = 0.275 + 0.950 S&P 500

The market beta for Horizon is b1 = .95

b. Since the p-value = 0.029 is less than  = .05, the relationship is significant.

c. r2 = .470. The least squares line does not provide a very good fit.

d. Xerox has higher risk with a market beta of 1.22.

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Chapter 14

67. a. The Minitab output is shown below:

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 0.2175 0.21749 4.99 0.038
Adjusted_Gross Income 1 0.2175 0.21749 4.99 0.038
Error 18 0.7845 0.04358
Total 19 1.0020

Model Summary

S R-sq R-sq(adj) R-sq(pred)

0.208768 21.71% 17.36% 6.61%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant -0.471 0.584 -0.81 0.431
Adjusted_Gross Income 0.000039 0.000017 2.23 0.038 1.00

Regression Equation

Percent_Audited = -0.471 + 0.000039 Adjusted_Gross Income

Variable Setting
Adjusted_Gross Income 35000

Fit SE Fit 95% CI 95% PI

0.882770 0.0523186 (0.772853, 0.992687) (0.430602, 1.33494)

b. Since the p-value = 0.038 is less than  = .05, the relationship is significant.

c. r2 = .217. The least squares line does not provide a very good fit.

d. The 95% confidence interval is .772853 to .992687.

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 Simple Linear Regression

68. a.

18.0
Price ($1000s) 16.0
14.0
12.0
10.0
8.0
6.0
4.0
0 20 40 60 80 100 120
Miles (1000s)

b. There appears to be a negative relationship between the two variables that can be approximated by a
straight line. An argument could also be made that the relationship is perhaps curvilinear because at
some point a car has so many miles that its value becomes very small.

c. The Minitab output is shown below.

Analysis of Variance

Source DF Adj SS Adj MS F-Value P-Value

Regression 1 47.158 47.158 19.85 0.000
Miles (1000s) 1 47.158 47.158 19.85 0.000
Error 17 40.389 2.376
Lack-of-Fit 15 36.469 2.431 1.24 0.535
Pure Error 2 3.920 1.960
Total 18 87.547

Model Summary

S R-sq R-sq(adj) R-sq(pred)

1.54138 53.87% 51.15% 41.30%

Coefficients

Term Coef SE Coef T-Value P-Value VIF

Constant 16.470 0.949 17.36 0.000
Miles (1000s) -0.0588 0.0132 -4.46 0.000 1.00

Regression Equation

Price ($1000s) = 16.470 - 0.0588 Miles (1000s)

d. Significant relationship: p-value = 0.000 < α = .05.

e. r 2 = .5387; a reasonably good fit considering that the condition of the car is also an important factor
in what the price is.

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Chapter 14

f. The slope of the estimated regression equation is -.0558. Thus, a one-unit increase in the value of x
coincides with a decrease in the value of y equal to .0558. Because the data were recorded in
thousands, every additional 1000 miles on the car’s odometer will result in a $55.80 decrease in the
predicted price.

g. The predicted price for a 2007 Camry with 60,000 miles is ŷ = 16.47 -.0588(60) = 12.942 or
$12,942. Because of other factors, such as condition and whether the seller is a private party or a
dealer, this is probably not the price you would offer for the car. But, it should be a good starting
point in figuring out what to offer the seller.

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