SESI 11 - CH 13 - SIMPLE-REGRESSION - Levine - Smume6 - ppt13

Statistics for Managers using
Microsoft Excel
6th Edition
Chapter 13
Simple Linear Regression
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-1

Learning Objectives
In this chapter, you learn:
 How to use regression analysis to predict the value of
a dependent variable based on an independent
variable
 The meaning of the regression coefficients b0 and b1
 How to evaluate the assumptions of regression
analysis and know what to do if the assumptions are
violated
 To make inferences about the slope and correlation
coefficient
 To estimate mean values and predict individual values
Correlation vs. Regression
DCOVA
 A scatter plot can be used to show the
relationship between two variables
 Correlation analysis is used to measure the
strength of the association (linear relationship)
between two variables
 Correlation is only concerned with strength of the
relationship
 No causal effect is implied with correlation
 Scatter plots were first presented in Ch. 2
 Correlation was first presented in Ch. 3

Introduction to
Regression Analysis
DCOVA
 Regression analysis is used to:
 Predict the value of a dependent variable based on
the value of at least one independent variable
 Explain the impact of changes in an independent
variable on the dependent variable
Dependent variable: the variable we wish to
predict or explain
Independent variable: the variable used to predict
or explain the dependent
variable

Model
DCOVA
 Only one independent variable, X
 Relationship between X and Y is
described by a linear function
 Changes in Y are assumed to be related
to changes in X

13.1 Types of Relationships
DCOVA
Linear relationships Curvilinear relationships
Y Y
X X
Y Y
X X
Types of Relationships
DCOVA
(continued)
Strong relationships Weak relationships
Y Y
X X
Y Y
X X
Types of Relationships
DCOVA
(continued)
No relationship
X
13.2 Simple Linear Regression Model
DCOVA
Population Random
Population Independent Error
Slope
Y intercept Variable term
Coefficient
Dependent
Variable
Yi  β0  β1Xi  ε i
Linear component Random Error
component

Model DCOVA
(continued)
Y Yi  β0  β1Xi  ε i
Observed Value
of Y for Xi
εi Slope = β1
Predicted Value
Random Error
of Y for Xi
for this Xi value
Intercept = β0
Xi X
Equation (Prediction Line) DCOVA
The simple linear regression equation provides an
estimate of the population regression line
Estimated
(or predicted) Estimate of Estimate of the
Y value for the regression regression slope
observation i
intercept
Value of X for
Ŷi  b0  b1Xi observation i

The Least Squares Method
DCOVA
b0 and b1 are obtained by finding the values of

that minimize the sum of the squared
differences between Y and Ŷ :
min  (Yi Ŷi )  min  (Yi  (b 0  b1Xi )) 2 2

Finding the Least Squares
Equation
DCOVA
 The coefficients b0 and b1 , and other

regression results in this chapter, will be
found using Excel
Formulas are shown in the text for those

who are interested

Interpretation of the
Slope and the Intercept
DCOVA
 b0 is the estimated average value of Y

when the value of X is zero
 b1 is the estimated change in the

average value of Y as a result of a
one-unit increase in X

Example P 502: Sunflowers Apparel
DCOVA
 The business objective of the director of planning
is to forecast annual sales for all new stores,
based on store size
 A random sample of 14 stores is selected
 Dependent variable (Y) = annual sales in
millions of dollars
 Independent variable (X) = square feet
(thousands)

Example: Data
DCOVA
Store Square Feet in 1,000 Annual Sales in $1,000,000s
(X) (Y)
1 1.7 3.7
2 1.6 3.9
3 2.8 6.7
4 5.6 9.5
5 1.3 3.4
6 2.2 5.6
7 1.3 3.7
8 1.1 2.7
9 3.2 5.5
10 1.5 2.9
11 5.2 10.7
12 4.6 7.6
13 5.8 11.8
14 3.0 4.1
Example: Scatter Plot
Scatter Diagram for Site Selection DCOVA
Annual Sales in $1,000,000s (Y)

14
12
10
0
0 1 2 3 4 5 6 7

Simple Linear Regression Example:
Using Excel Data Analysis Function
DCOVA
1. Choose Data 2. Choose Data Analysis
3. Choose Regression

Using Excel Data Analysis Function
(continued)
Enter Y’s and X’s and desired options DCOVA

Using PHStat
Add-Ins: PHStat: Regression: Simple Linear Regression

Excel Output
DCOVA
Regression Statistics
Multiple R 0.950883 The regression equation is:
R Square 0.904179
Adjusted R Square 0.896194 Yˆi  0.9645  1.6699 X i (square feet)
Standard Error 0.96638
Observations 14
ANOVA
df SS MS F Significance F
Regression 1 105.7476 105.7476 113.2335 1.82269E-07
Residual 12 11.20668 0.93389
Total 13 116.9543
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 0.9645 0.5262 1.8329 0.0917 -0.1820 2.1110
Square Feet 1.6699 0.1569 10.6411 0.0000 1.3280 2.0118

Scatter Plot
Scatter Diagram for Site Selection DCOVA
Annual Sales in $1,000,000s (Y)

14
12 Y = 0.9645 + 1.6699X
R2 = 0.9042
10
0
0 1 2 3 4 5 6 7

Interpretation of bo
DCOVA
0.9645 + 1.6699
 b0 is the estimated average value of Y when the
value of X is zero (if X = 0 is in the range of observed
X values)
 Because the square footage of the store cannot be
0, this Y intercept has little or no practical
interpretation.

Interpreting b1 DCOVA
0.9645 + 1.6699
 b1 estimates the change in the average value

of Y as a result of a one-unit increase in X
 Here, b1 = 1.6699 tells us that for each increase of 1.0
thousand square feet in size of the store, the predicted
annual sales are estimated to increase by 1.6699 millions
of dollars.

Example: Making Predictions
DCOVA
Predict the annual sales for a
store with 4,000 square feet:
0.9645 + 1.6699
0.9645 + 1.6699 = 7.644 or $7,644,000
A store with 4,000 square feet has

predicted annual sales of $7,644,000

SOAL LATIHAN
 Manajer penjualan mengumpulkan data penjualan (dalam $1,000) dan lamanya
pengalaman (dalam tahun) dari 10 orang sales.
Sales person Years (X) Sales ($1,000) (Y) Pertanyaan:

1 1 80 1. Tentukan estimasi
2 3 97 persamaan regresi linear
3 4 92 sederhananya.
4 4 102 2. Interpretasikan
5 6 103 persamaannya
6 8 111 3. Berapakah besarnya
7 10 119 penjualan jika seorang
8 10 123 sales dengan
9 11 117 pengalaman 5 tahun?
10 13 136

Jawaban
Years (X) Sales (Y) X2 Y2 XY
1 80 1 6,400 80
3 97 9 9,409 291
4 92 16 8,464 368
4 102 16 10,404 408
6 103 36 10,609 618
8 111 64 12,321 888
10 119 100 14,161 1190
10 123 100 15,129 1230
11 117 121 13,689 1287
13 136 169 18,496 1768
avg 7 108
sum 70 1080 632 119,082 8,128
SSXY 568
SSX 142
b1 4
b0 80

13.3 Measures of Variation
DCOVA
 Total variation is made up of two parts:
SST  SSR  SSE

Total Sum of Regression Sum Error Sum of
Squares of Squares Squares
SST   ( Yi  Y )2 SSR   ( Ŷi  Y )2 SSE   ( Yi  Ŷi )2

where:
=Y
Mean value of the dependent variable
Yi = Observed value of the dependent variable
Yˆ
i
= Predicted value of Y for the given Xi value
Measures of Variation
(continued)
DCOVA
 SST = total sum of squares (Total Variation)
 Measures the variation of the Yi values around their mean
Y
 SSR = regression sum of squares (Explained Variation)
 Variation attributable to the relationship between X and Y
 SSE = error sum of squares (Unexplained Variation)
 Variation in Y attributable to factors other than X

Measures of Variation
(continued)
DCOVA
Y
Yi  
SSE = (Yi - Yi )2 Y
_
SST = (Yi - Y)2

Y  _
_ SSR = (Yi - Y)2 _
Y Y
Xi X
Coefficient of Determination, r2
DCOVA
 The coefficient of determination is the portion of
the total variation in the dependent variable that is
explained by variation in the independent variable
 The coefficient of determination is also called r-
squared and is denoted as r2
SSR regression sum of squares

r 2

SST total sum of squares
note: 0 r 1 2

Examples of Approximate
r2 Values
DCOVA
Y
r2 = 1
Perfect linear relationship

between X and Y:
X
r2 = 1
Y 100% of the variation in Y is
explained by variation in X
X
r =1
2

r2 Values
DCOVA
Y
0 < r2 < 1
Weaker linear relationships

between X and Y:
X
Some but not all of the
Y
variation in Y is explained
by variation in X
X
r2 Values
DCOVA
r2 = 0
Y
No linear relationship
between X and Y:
The value of Y does not

X depend on X. (None of the
r2 = 0
variation in Y is explained
by variation in X)

Coefficient of Determination, r2 in Excel
DCOVA
SSR 105.7476
r2    0.9042
Multiple R 0.9509 SST 116 .9543
R Square 0.9042
Adjusted R Square 0.8962 90.42% of the variation in
annual sales is explained by
Observations 14
variability in the size of store
ANOVA
Regression 1 105.7476 105.7476 113.2335 0.0000
Residual 12 11.2067 0.9339
Total 13 116.9543

Intercept 0.9645 0.5262 1.8329 0.0917 -0.1820 2.1110
Square Feet 1.6699 0.1569 10.6411 0.0000 1.3280 2.0118

SOAL LATIHAN
 Manajer penjualan mengumpulkan data penjualan dan lamanya pengalaman
(dalam tahun) dari 10 orang sales.
Sales person Years (X) Sales (Y) Pertanyaan:

1 1 80
1. Tentukan
2 3 97
3 4 92
koefisien
4 4 102 determinasi
5 6 103
6 8 111
7 10 119
8 10 123
9 11 117
10 13 136

Jawaban Soal Latihan
Coefficient of Determination, r2 in Excel
DCOVA
SSR 2272
r2    0.9304
Multiple R 0.964565 SST 2442
R Square 0.930385
Adjusted R Square 0.921683 93.04% of the variation in
Observations
annual sales is explained by
10
variability in the size of store
ANOVA
Regression 1 2272 2272 106.9176 0.0000
Residual 8 170 21.25
Total 9 2442

Intercept 80 3.0753 26.0133 0.0000 72.9082 87.0918
Square Feet 4 0.3868 10.3401 0.0000 3.1079 4.8921

Standard Error of Estimate
DCOVA
 The standard deviation of the variation of
observations around the regression line is estimated
by
n
SSE
 ˆ
(Yi  Yi ) 2
i 1
S YX  
n2 n2
Where
SSE = error sum of squares
n = sample size

Standard Error of Estimate in Excel
DCOVA
Multiple R 0.9509 S YX  0.9664
R Square 0.9042
Adjusted R Square 0.8962
Observations 14
ANOVA
Regression 1 105.7476 105.7476 113.2335 0.0000
Residual 12 11.2067 0.9339
Total 13 116.9543

Intercept 0.9645 0.5262 1.8329 0.0917 -0.1820 2.1110
Square Feet 1.6699 0.1569 10.6411 0.0000 1.3280 2.0118

Comparing Standard Errors
DCOVA
SYX is a measure of the variation of observed
Y values from the regression line
Y Y
smallSYX X large SYX X
The magnitude of SYX should always be judged relative to the

size of the Y values in the sample data

13.7 Inferences About the Slope
DCOVA
 The standard error of the regression slope
coefficient (b1) is estimated by
S YX S YX
Sb1  
SSX  i
(X  X ) 2
where:
S=bEstimate
1
of the standard error of the slope
SSE
S YX  = Standard error of the estimate
n2
Inferences About the Slope:
t Test
DCOVA
 t test for a population slope
 Is there a linear relationship between X and Y?
 Null and alternative hypotheses
 H0: β1 = 0 (no linear relationship)
 H1: β1 ≠ 0 (linear relationship does exist)
 Test statistic where:
b1  β1
t STAT  b1 = regression slope
coefficient
Sb β1 = hypothesized slope
1
Sb1 = standard
d.f.  n  2 error of the slope

t Test Example
Square Feet in Annual Sales in
1,000 $1,000,000s DCOVA
(X) (Y)
1.7 3.7
Estimated Regression Equation:
1.6 3.9
2.8 6.7
Annual Sales  0.9645  1.6699 X i
5.6 9.5
1.3 3.4
2.2 5.6
1.3 3.7 The slope of this model is 1.6699
1.1 2.7
3.2 5.5
Is there a relationship between the
1.5 2.9 size of the store and the annual sales
5.2 10.7 at the 0.05 level of significance?
4.6 7.6
5.8 11.8
3.0 4.1

t Test Example
H0: β1 = 0 DCOVA
From Excel output: H1: β1 ≠ 0

Coefficients Standard Error t Stat P-value
Intercept 0.9645 0.5262 1.8329 0.0917
Square Feet 1.6699 0.1569 10.6411 0.0000
b1 Sb1
b 1  β 1 1.6699  0
t STAT    10.6411
S b1 0.1569

t Test Example
DCOVA
H0: β1 = 0
Test Statistic: tSTAT = 10.6411
H1: β1 ≠ 0
d.f. = 14- 2 = 12
a/2=.025 a/2=.025
Decision: Reject H0
There is sufficient evidence

Reject H0
-tα/2
Do not reject H0
tα/2
Reject H0 that the size of the store
0
-2.1788 2.1788 10.6411 affects annual sales

t Test Example
DCOVA
H0: β1 = 0
H1: β1 ≠ 0
From Excel output:
Intercept 0.9645 0.5262 1.8329 0.0917
Square Feet 1.6699 0.1569 10.6411 0.0000
p-value
Decision: Reject H0, since p-value < α
There is sufficient evidence that the
size of the store affects annual sales.
F Test for Significance
DCOVA
 F Test statistic: MSR
FSTAT 
MSE
where SSR
MSR 
k
SSE
MSE 
n  k 1
where FSTAT follows an F distribution with k numerator and (n – k - 1)
denominator degrees of freedom
(k = the number of independent variables in the regression model)

F-Test for Significance
Excel Output
DCOVA
Multiple R 0.9509
MSR 105.7476
R Square 0.9042 FSTAT    113.2335
Adjusted R MSE 0.9339
Square 0.8962
With 1 and 12 degrees p-value for
Observations 14 of freedom the F-Test
ANOVA Significance
df SS MS F F
Regression 1 105.7476 105.7476 113.2335 0.0000
Residual 12 11.2067 0.9339
Total 13 116.9543

F Test for Significance
(continued)
DCOVA
H0: β1 = 0 Test Statistic:
H1: β1 ≠ 0 MSR
FSTAT   113.2335
 = .05 MSE
df1= 1 df2 = 12 Decision:

Critical Reject H0 at  = 0.05
Value:
F = 4.75
Conclusion:
 = .05
There is sufficient evidence that
0 F the size of the store affects
Do not Reject H0
reject H0
F.05 = 4.75
annual sales
SOAL LATIHAN
 Manajer penjualan mengumpulkan data penjualan dan lamanya pengalaman
(dalam tahun) dari 10 orang sales.
Sales person Years (X) Sales (Y) Pertanyaan:

1 1 80
1. Lakukan uji t dan
2 3 97
3 4 92
uji F
4 4 102
5 6 103
6 8 111
7 10 119
8 10 123
9 11 117
10 13 136

Jawaban: t Test
H0: β1 = 0 DCOVA
From Excel output: H1: β1 ≠ 0

Intercept 80 3.0753 26.0133 0.0000
Square Feet 4 0.3868 10.3401 0.0000
b1 Sb1
b1  β1 40
t STAT    10.3401
S b1 0.3868

Jawaban: t Test
DCOVA
H0: β1 = 0
Test Statistic: tSTAT = 10.3401
H1: β1 ≠ 0
d.f. = 10- 2 = 8
a/2=.025 a/2=.025
Decision: Reject H0
Ada bukti yang cukup

Reject H0
-tα/2
Do not reject H0
tα/2
Reject H0 bahwa lamanya pengalaman
0
-2.3060 2.3060 10.3401 sales mempunyai pengaruh
pada penjualan
Jawaban F-Test
DCOVA
Multiple R 0.9646
MSR 2272
R Square 0.9304 FSTAT    106.9176
Adjusted R MSE 21.25
Square 0.9217
With 1 and 8 degrees p-value for
Observations 10 of freedom the F-Test
ANOVA Significance
df SS MS F F
Regression 1 2272 2272 106.9176 0.0000
Residual 8 170 21.25
Total 9 2442

F Test for Significance (continued)
DCOVA
H0: β1 = 0 Test Statistic:
H1: β1 ≠ 0 MSR
FSTAT   106.9176
 = .05 MSE
df1= 1 df2 = 8 Decision:

Critical Reject H0 at  = 0.05
Value:
F = 5.32
Conclusion:
 = .05
Ada bukti yang cukup bahwa
0 F lamanya pengalaman sales
Do not Reject H0
reject H0
F.05 = 5.32
berpengaruh pada penjualan.
Confidence Interval Estimate
for the Slope
DCOVA
Confidence Interval Estimate of the Slope:
b1  t α / 2 S b d.f. = n - 2
1
Excel Printout for annual sales:

Intercept 0.9645 0.5262 1.8329 0.0917 -0.1820 2.1110
Square Feet 1.6699 0.1569 10.6411 0.0000 1.3280 2.0118
At 95% level of confidence, the confidence interval for

the slope is (1.3280, 2.0118)

Confidence Interval Estimate
for the Slope (continued)
DCOVA
Intercept 0.9645 0.5262 1.8329 0.0917 -0.1820 2.1110
Square Feet 1.6699 0.1569 10.6411 0.0000 1.3280 2.0118
The confidence interval indicates that for each

increase of $1,000 square feet, predicted annual
sales are estimated to increase by at least
$1,328,000 but no more than $2,011,800.

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Statistics for Managers using

Simple Linear Regression

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-1

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-3

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-4

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-5

Linear relationships Curvilinear relationships

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-9

Ŷi  b0  b1Xi observation i

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-11

b0 and b1 are obtained by finding the values of

min  (Yi Ŷi )  min  (Yi  (b 0  b1Xi )) 2 2

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-12

 The coefficients b0 and b1 , and other

Formulas are shown in the text for those

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-13

 b0 is the estimated average value of Y

 b1 is the estimated change in the

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-14

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-15

Annual Sales in $1,000,000s (Y)

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-17

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-18

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-19

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-20

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-21

Annual Sales in $1,000,000s (Y)

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-22

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-23

 b1 estimates the change in the average value

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-24

0.9645 + 1.6699 = 7.644 or $7,644,000

A store with 4,000 square feet has

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-25

Sales person Years (X) Sales ($1,000) (Y) Pertanyaan:

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-26

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-27

SST  SSR  SSE

SST   ( Yi  Y )2 SSR   ( Ŷi  Y )2 SSE   ( Yi  Ŷi )2

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SSR regression sum of squares

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Perfect linear relationship

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Weaker linear relationships

The value of Y does not

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-34

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-35

Sales person Years (X) Sales (Y) Pertanyaan:

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-36

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-37

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-38

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall 13-39

smallSYX X large SYX X