TABLE 1 ee Be eee eae) | Weekly Sales Level, ¥ Selling Price Week (1,000s of gallons) x@® 1 10 130 2 6 2.00 3 5 1.70 4 12 150 5 10 1.60 6 15 1.20 7 5 1.60 8 12 1.40 9 Wa 1.00 10 20 1.10 Se er aoe LY Correlations: Sales, Price Pearson correlation of Sales (¥) and Price (x)= ~ 0.863 @ Regression Analysis: Sales versus Price The regression equation is Sales (¥) = 32.1~ 14.5 Price (x) (5) and (2) Predictor coef, SE Coef T P Constant 32.136 (5) 4.409 7.29 0.000 Price (x) -14.539 (2) 3.002 (3) —4.84 (4) 0.002 (7) $= 2.72545 (6) R-Sq= 74.6% (8) R~Sa(adj) = 71.4% (9) Analysis of Variance source DF ss Ms F P Regression 1 174.18 174,18 23.45 (12) 0-002 Residual Error 8 59.42 (10) 7.43 (6) Total 9 233.60 (11)Correlation = —.86. The sample correlation coefficient (r) indicates the relation- ship between X and Y, or price and sales, respectively. Regression coefficient (Coef) = —14.54. This value (b,) is the change in Y (sales) when X (price) increases by one unit. When price increases $1, estimated sales decrease by 14,539 units. Standard error of regression coefficient (SE Coef) = 3.0. This value is the esti- mated standard deviation of the regression coefficient value (b,). Syaef V(X — X)? = 2.725/V.824 = 2.725/.908 5b, 3.002 Computed value = ~4,84.The computed ¢ value is used to test whether the pop- ulation regression coefficient (8,) is significantly different from zero, by 14.54 1 30m = At Constant = 32.14. This value is the ¥-intercept (b,). Therefore, the entire regres- sion equation is ¥ = 3214 — 14,54X Standard error of estimate = 2.725. The standard error of the estimate indicates that the Y values fall typically about 2.725 units from the regression line. Z(¥ - PP Syn Vi (YY [SSE _ use = V7a3 = 2.705 n-2 n-2~ The p value, .001, is the probability of obtaining a ¢ value as large as |t| =|-4.84| = 4.84 by chance if Hy: B; = Ois true. Since the p value is extremely small, it is concluded that the regression slope coefficient is significantly different from 0.8 7 (R-Sq) = .746. The fitted regression line explains 74.6% of the sales volume variance. SSR SST 9. Adjusted r? (R—Sq(adj)) freedom. 714. P° is adjusted for the appropriate degrees of _ &(Y = PY /(n = 2) SSE/(n — 2) _ 59.42/8 X(¥ — Y¥)/(n - 1) SST/(n — 1) 233.60/9 7.428 = 1 5d 9gg = 1 ~ 286 = 714 10. Residual sum of squares (Residual Error) = 59.42. The sum of squares residual is the sum of squared differences between the actual ¥’s and the predicted Y's (Ys). SSE = 3(¥ — PP = 59.42 11, Total sum of squares = 233.60. This value is the sum of the squared deviations of the Y's from their mean. SST = 3(¥ — YP = 233.60 12, Analysis of variance and F ratio: The F ratio (23.45 = 174.18/7.43) in this ANOVA table tests the null hypothesis that the regression is not significant; that is, Hp: B; = 0. A large F value will allow rejection of this hypothesis, suggesting a significant regression. The F value (23.45) becomes larger as a larger portion of the total sum of squared deviations (S87) is explained by the regression. In this case, the tabulated F value (df = 1, 8; « = .01) is 11.26. The hypothesis of no significant regression is rejected at the 1% significance level, since F = 23.45 > 11.26. (See Example 9.)‘Sum of squared errors SSE = X(¥ ~ PY = (¥ - by — bX)? ‘Method of least squares: slope formula b= sx? (xP BX XP ‘Method of least squares: ¥-intercept formula Relation between slope coefficient and correlation coefficient Va" - ¥? scars ap” Observation = Fit + Residual y=Y+(y-7/ Fitted regression equation Y = by + bX ‘Standard error of estimate: definitional formula _ nBXY- BXEY _ U(X ~ XY ~ ¥) @ 2) @) @ © ©Standard error of estimate: definitional formula n-2 ‘Standard error of estimate: computational formula sas v= byZY — bh EXY ne n- Standard error of the forecast Prediction interval Ps ts, Large-sample 95% prediction interval 4 25, ‘Sum of squares and degrees of freedom decomposition SST = SSR + SSE XY - FP =U - ve + UY PP dfin-1=1+(n-2 oO ® o (0) ay (12) a3)Coefficient of determination xy - PP xv -¥P Standard error of the regression coefficient Sin = Syn VE(X — XP F statistic _ Regression mean square _ MSR F Errormean square MSE Relation of F statistic to coefficient of determination _ Pn -2) — 1-7 Residual autocorrelation coefficient > tere k de at (4) is) (16) a7