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Linear Regression
Chapter 13
McGraw-Hill/Irwin
Learning Objectives
LO1 Define the terms dependent and independent variable.
LO2 Calculate, test, and interpret the relationship between two
variables using the correlation coefficient.
LO3 Apply regression analysis to estimate the linear relationship
between two variables
LO4 Interpret the regression analysis.
LO5 Evaluate the significance of the slope of the regression equation.
LO6 Evaluate a regression equation to predict the dependent variable.
LO7 Calculate and interpret the coefficient of determination.
LO8 Calculate and interpret confidence and prediction intervals.
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relationship between two variables using a scatter diagram. The profit for
each vehicle sold and the age of the buyer were plotted on an XY graph
The graph showed that as the age of the buyer increased, the profit for each
vehicle also increased
This idea is explored further here. Numerical measures to express the
strength of relationship between two variables are developed.
In addition, an equation is used to express the relationship between
variables, allowing us to estimate one variable on the basis of another.
EXAMPLES
Does the amount Healthtex spends per month on training its sales force affect its
monthly sales?
Is the number of square feet in a home related to the cost to heat the home in January?
In a study of fuel efficiency, is there a relationship between miles per gallon and the
weight of a car?
Does the number of hours that students studied for an exam influence the exam score?
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LO1
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It shows the direction and strength of the linear relationship between two interval or ratio-scale variables
It can range from -1.00 to +1.00.
Values of -1.00 or +1.00 indicate perfect and strong correlation.
Values close to 0.0 indicate weak correlation.
Negative values indicate an inverse relationship and positive values indicate a direct relationship.
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LO2
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LO2
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LO2
LO2
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LO2
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LO2
Computing t, we get
The computed t (3.297) is within the rejection region, therefore, we will reject H0. This
means the correlation in the population is not zero. From a practical standpoint, it
indicates to the sales manager that there is correlation with respect to the number of
sales calls made and the number of copiers sold in the population of salespeople.
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LO2
Strong positive
correlation
No correlation
Weak negative
correlation
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Regression Analysis
LO3
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LO3
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LO3
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LO3
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Y a bX
^
Y 18.9476 1.1842 X
^
Y 42.6316
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LO5
b 0 1.1842 0
3.297
sb
0.3591
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LO5
s y. x
s y.x
(Y Y ) 2
n2
Y 2 aY bXY
n2
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LO5
s y.x
Y 18.9476 1.1842 X
(Y Y ) 2
n2
784.211
9.901
10 2
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LO5
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Coefficient of Determination
The coefficient of determination (r2) is the proportion of
the total variation in the dependent variable (Y) that is
explained or accounted for by the variation in the
independent variable (X). It is the square of the coefficient
of correlation.
It ranges from 0 to 1.
It does not give any information on the direction of
the relationship between the variables.
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LO6
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Tom Keller
^
Y 18.9476 1.1842 X
^
Y 18.9476 1.1842(20)
^
Y 42.6316
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Soni Jones
^
Y 18.9476 1.1842 X
^
Y 18.9476 1.1842(30)
^
Y 54.4736
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LO7
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LO7
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LO7
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LO7
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LO7
Y 18.9476 1.1842 X
^
Y 18.9476 1.1842(25)
^
Y 48.5526
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LO7
LO7
X X
Step 3 Compute
X X
and
X X
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LO7
Thus, the 95 percent confidence interval for the average sales of all
sales representatives who make 25 calls is from 40.9170 up to
56.1882 copiers.
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LO7
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LO7
Y 18.9476 1.1842 X
^
Y 18.9476 1.1842(25)
^
Y 48.5526
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LO7
LO7
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