082. Chapter Checklist. You Make the Decision

1. The CEO for the Acme Trucking Company is concerned about recent trends in business performance. Profits are falling, and the stockholders are calling for the resignation. He comes to you for some answers regarding this predicament. You collect data on miles driven by the firm’s trucks and resulting revenues the firm earned. The CEO asks if there might be a relationship between these two important variables and to what degree miles driven might explain revenues.

A. What do you do? How do you respond?

B. The CEO wants to know if your work will allow him to predict future revenues. How could you use you r statistical results to provide an estimate of revenues in near future?

C. Your results include the regression model

= 23.2 = 523.6 MD,

Where Rev is earned revenues;

MD is miles driven by the firm’s trucks,

With a correlation coefficient of 0.78. How would you interpret these results?

D. Your CEO feels confident in your statistical study given the fact that, he concludes, MD causes 78 percent of the change in Rev. How do you respond?

E. You tell the CEO that the regression line you have computed is a mean line and that it is the line of best fit. Having no knowledge of statistical analysis, he asks you to explain. What do you tell him?

Conceptual Questions

2. What is meant by “minimizing the sum of the errors squared” in your model for the trucking firm in Problem 1?

3. In what way might autocorrelation and heteroscedasticity present a problem in your regression model?

4. What is the difference between regression and correlation?

5. Identify the dependent and independent variables in each case:

A. Time spent working on a term paper and the grade received.

B. Height of a son and height of a father.

C. A woman’s age and the cost of her life insurance.

D. Price of a product and the number of units purchased by an individual.

E. Demand for a product and the number of consumers in the market.

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