Activity No.

10
Linear Regression

NAME: TIFFANY NICOLE F. NAVARRO. Course Number: BUS STAT

1. Suppose the following data were collected from a sample of 10 branches of a pizza
restaurant chain located near college campuses:

Pizza restaurant
250

200
Quarterly Sales

150
(in $1000)

100

50

0
0 5 10 15 20 25 30
Student Population
(in 1000s)

A. Scatter Diagram

B. The scatter plot reveals that the points follow a linear trend. This implies a linear
relationship between the student population of the nearby campus and the quarterly sales of
the restaurant.

C. Given:

N=10 , X́ =14 , ∑ x=140 , ∑ x 2=2528 , Ý =130 , ∑ y=1300 , ∑ y 2=184730 , ∑ xy=21040

Solution:
n ∑ xy−∑ x ∑ y 10 ( 21040 )−140 (1300)
b= 2 2
= =5
n ∑ x −(∑ x ) 10 ( 2528 )−140 2

a= ý−b x́ =130−5 ( 14 ) =60

^y =a+bx ^y =60+5 x
 D. Compute the Pearson correlation coefficient and the coefficient of determination and interpret these.
r =n ∑ xy−¿ ¿ ¿
 There is a very strong positive correlation between the student population of the nearby campus and
the quarterly sales of the restaurant as indicated by the correlation coefficient value of 0.9501.

r 2=0.95012=0.9027
 The coefficient of determination means that 90.27% of the total variation in the quarterly sales can be
explained by the linear relationship between the student population and the quarterly sales.

2. A study was made by a retail merchant to determine the relation between weekly
advertising expenditures and sales. The following data were recorded:

Retail Merchant
600

500

400
Sales

300

200

100

0
15 20 25 30 35 40 45 50 55
Advertising costs

A. Scatter Diagram:

 The scatter plot shows a linear trend being exhibited by the points. This implies a linear
relationship between the weekly advertising costs and the weekly sales.

B. Given:
2
N=12 , x́=34.1667 , ∑ x=410 , ∑ x =15650 , ý=453.75 , ∑ y =5445 , ∑ y 2=2512925 , ∑ xy =191

Solution:

n ∑ xy−∑ x ∑ y
b= 2
n ∑ x −¿ ¿¿

a= ý−b x́ =453.75−3.22081 ( 34.1667 ) =343.7056 =

C. Compute the coefficient of correlation. Interpret.

r =n ∑ xy−¿ ¿ ¿

 The coefficient of correlation is 0.6348.There is a strong positive correlation between the weekly
advertising costs and the weekly sales as indicated by the correlation coefficient value of 0.6348.

D. Compute the coefficient of determination. Interpret.

r 2=0.63482=0.4030
 The coefficient of determination is 0.4030 which means that 40.30% of the total variation in the
weekly sales can be explained by the linear relationship between the weekly advertising cost and
the weekly sales.

E. Estimate the weekly sales when advertising costs are $35.

^y =343.7056+ 3.2208 ( 35 )=456.4336 %

 The estimated weekly sales is $456.4336 when the advertising costs are 35 dollars.

3. The paired data below consist of the costs of advertising (in thousands of dollars) and the number
of products sold (in thousands).

Scatter Plot of Data

80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7 8 9 10 11
Costs of advertising (in thousands of dollars)

A. Scatter Diagram
  The scatter plot shows a linear trend being exhibited by the points. This implies a linear
relationship between the advertising costs and the number of products sold.

B. Given:
2 2
N=8 , x́=5.5 , ∑ x=44 , ∑ x =320 , ý=71.125 , ∑ y=569 , ∑ y =41681, ∑ xy=3347

Solution:
n ∑ xy−∑ x ∑ y 8 ( 3347 )−(44)(569)
b= 2 2
= =2.7885
n ∑ x −(∑ x) 8 ( 320 ) −(44)2

a= ý−b x́ =71.125−2.7885 ( 5.5 )=55.7883

^y =a+bx ^y =55.7883+2.7885 x

C. Compute the coefficient of correlation. Interpret.

r =n ∑ xy−¿ ¿ ¿

 The coefficient of correlation is 0.7077.There is a strong positive correlation between the cost of
advertising and the number of products sold as indicated by the correlation coefficient value of
0.7077.

D. Compute the coefficient of determination. Interpret.

r 2=0.70772=0.5008
 The coefficient of determination is 0.5008 which means that 50.08% of the total variation in the
number of products sold can be explained by the linear relationship between the cost of
advertising and the number of products sold.

E. Estimate the number of products sold when advertising costs are $4500.

^y =55.7883+ 2.7885 ( 4.5 )=68.3367 %

4. An article in Business Week listed the “Best Small Companies” with its sales and earnings. A
random sample of 12 companies was selected and the sales and earnings, in millions of dollars,
are reported below.
 12 Small Company
14

12
Earnings (in million $)

10

0
0 10 20 30 40 50 60 70 80 90 100
Sales (in million $)

A. Scatter Diagram

 The scatter plot shows a linear trend being exhibited by the points. This implies a linear
relationship between the sales and the earnings.

B. Given:
2
N=12 , x́=41.7583, ∑ x=501.1 , ∑ x =28458.99 , ý =5.3417 , ∑ y=64.1 , ∑ y 2=458.41 , ∑
Solution:
n ∑ xy−∑ x ∑ y 12 ( 3306.35 )−( 501.1 ) ( 64.1 )
b= 2 2
= =0.08357
n ∑ x −(∑ x) 12 ( 28458.99 )−(501)2

a= ý−b x́ =5.3417−0.08357 ( 41.7583 )=1.8519

^y =a+bx ^y =1.8519+0.08357 x

C. Compute the coefficient of correlation. Interpret.

r =n ∑ xy−¿ ¿ ¿

 The coefficient of correlation is 0.6735.There is a strong positive correlation between the sales
and earnings of the companies as indicated by the correlation coefficient value of 0.6735.

D. Compute the coefficient of determination. Interpret.

 The coefficient of determination is 0.4536 which means that 45.36% of the total variation in the
earnings can be explained by the linear relationship between the sales and earnings.

E. For a small company with $50 million in sales, estimate the earnings.
 ^y =1.8519+ 0.08357 (50 )=6.0304 %

 The estimated earnings is 6.03 million dollars for a small company when the sales are 50 million
dollars.