Professional Documents
Culture Documents
Chap013-Simple Regression
Chap013-Simple Regression
Chap013-Simple Regression
Linear Regression
Chapter 13
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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.
13-2
Regression Analysis -
Introduction
Recall in chapter 4 we used Applewood Auto Group data to show the
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?
13-3
LO1 Define the terms dependent
and independent variable.
Which in the questions below are the dependent and independent variables?
1.Does the amount Healthtex spends per month on training its sales force affect its
monthly sales?
2.Is the number of square feet in a home related to the cost to heat the home in
January?
3.In a study of fuel efficiency, is there a relationship between miles per gallon and the
weight of a car?
4.Does the number of hours that students studied for an exam influence the exam
score?
13-4
LO1
13-5
LO2 Calculate, test, and interpret the relationship between
two variables using the correlation coefficient.
13-6
LO2
13-7
LO2
13-8
LO2
However, does this mean that more sales calls cause more sales?
No, we have not demonstrated cause and effect here, only that the two variables—sales calls
and copiers sold—are related.
13-9
LO2
Testing the Significance of
the Correlation Coefficient
13-10
LO2
13-11
LO2
Computing t, we get
The computed t (3.297) is within the rejection region, therefore, we will reject H 0.
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.
13-12
LO2
Strong positive
correlation
No correlation
Weak negative
correlation
13-13
LO3 Apply regression analysis to estimate the linear
relationship between two variables.
Regression Analysis
In regression analysis we use the independent
variable (X) to estimate the dependent variable (Y).
The relationship between the variables is linear.
Both variables must be at least interval scale.
The least squares criterion is used to determine the
equation.
13-15
LO3
13-16
LO3
13-17
Regression Equation - LO3
Example
Recall the example involving
Copier Sales of America. The
sales manager gathered
information on the number of
sales calls made and the
number of copiers sold for a
random sample of 10 sales
representatives. Use the least
squares method to determine a
linear equation to express the
relationship between the two
variables.
What is the expected number of
copiers sold by a representative
who made 20 calls?
13-18
LO4 Interpret the regression analysis.
Finding and Fitting the Regression Equation -
Example
13-19
LO5 Evaluate the significance of the
slope of the regression equation.
13-20
LO5
Y aY bXY
2
s y. x
n2
13-22
LO5
13-23
LO5
13-24
LO6 Calculate and interpret the
Coefficient of Determination.
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.
13-25
LO6
13-26
LO7 Calculate and interpret
confidence and interval estimates.
Tom Keller
^
Y 18.9476 1.1842 X
^
Y 18.9476 1.1842(20)
^
Y 42.6316
13-27
LO7 Calculate and interpret
confidence and interval estimates.
Soni Jones
^
Y 18.9476 1.1842 X
^
Y 18.9476 1.1842(30)
^
Y 54.4736
13-28
LO7
13-29
LO7
Assumptions Underlying Linear
Regression
For each value of X, there is a group of Y values, and these
Y values are normally distributed. The means of these normal
distributions of Y values all lie on the straight line of regression.
The standard deviations of these normal distributions are
equal.
The Y values are statistically independent. This means that in
the selection of a sample, the Y values chosen for a particular X
value do not depend on the Y values for any other X values.
13-30
LO7
13-31
LO7
13-32
LO7
13-34
LO7
Step 3 – Compute X X
2
and X X
2
X X
2
13-35
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.
13-36
LO7
13-37
LO7
13-40