MBA-EX 8102-Quantative Methods for Management

Assignment-7, Class-7
Submitted By - Navneet Singh
Roll No. S037

Problem 1
A fire insurance company wants to relate the amount of fire damage (Y) in major residential areas
to the distance between the residence and the nearest fire station (X). The study is to be conducted in
a large suburb of a major city, a sample of 15 recent fires in this suburb is selected.:

1. Perform a simple linear regression to specify the association between amount of fire damage and
distance between the residence and the nearest fire station.
2. Interpret the result obtained from regression analysis.

1
Ans 1:

(X-X')(Y-
X Y X-X' Y-Y' (X-X')^2 (Y-Y')^2 Y')
3.3 27.1 0.113333 0.286667 0.012844 0.082178 0.032489
1.7 18.7 -1.48667 -8.11333 2.210178 65.82618 12.06182
4.5 32.2 1.313333 5.386667 1.724844 29.01618 7.074489
2.2 24 -0.98667 -2.81333 0.973511 7.914844 2.775822
3 28.4 -0.18667 1.586667 0.034844 2.517511 -0.29618
5.4 36.9 2.213333 10.08667 4.898844 101.7408 22.32516
0.6 15 -2.58667 -11.8133 6.690844 139.5548 30.55716
2.9 15 -0.28667 -11.8133 0.082178 139.5548 3.386489
2.5 23.2 -0.68667 -3.61333 0.471511 13.05618 2.481156
4.2 32.2 1.013333 5.386667 1.026844 29.01618 5.458489
2 24.9 -1.18667 -1.91333 1.408178 3.660844 2.270489
1 18.2 -2.18667 -8.61333 4.781511 74.18951 18.83449
6.1 42.1 2.913333 15.28667 8.487511 233.6822 44.53516
4.7 37.3 1.513333 10.48667 2.290178 109.9702 15.86982
3.7 27 0.513333 0.186667 0.263511 0.034844 0.095822
Mean 3.186667 26.81333 35.35733 167.4627
a 4.736292
b 11.72035

Relationship between fire damage and distance between residence and fire station

Fire damage = 11.72035 + 4.736292 * distance between residence and fire station

Linear Regression from Excel Function

X Variable 1 Line Fit Plot

45
40 y = 4.7363x + 11.72
35
30
Fire Damage

25
Y
20
Predicted Y
15
10 Linear (Predicted Y)
5
0
0 1 2 3 4 5 6 7
Distance between residence and fire station

2
SUMMAR
Y
OUTPUT

Regression Statistics
Multiple
R 0.913814
R Square 0.835057
Adjusted
R Square 0.822369
Standard
Error 3.471479
Observati
ons 15

ANOVA
Significan
df SS MS F ce F
Regressio 793.1521 793.15 65.815 1.91806E
n 1 437 21 37 -06
156.6651 12.051
Residual 13 897 17
949.8173
Total 14 333

Coefficien Standard P- Lower Upper Lower Upper

ts Error t Stat value 95% 95% 95.0% 95.0%
11.72034 2.065086 5.6754 7.6E- 7.259000 16.18169 7.259000 16.18169
Intercept 844 248 76 05 839 605 839 605
X
Variable 4.736292 0.583814 8.1126 1.92E- 3.475037 5.997546 3.475037 5.997546
1 33 432 67 06 929 73 929 73

RESIDUAL
OUTPUT

Observati Predicted
on Y Residuals
-
27.35011 0.250113
1 313 131
-
19.77204 1.072045
2 54 403

3
 -
33.03366 0.833663
3 393 926
22.14019 1.859808
4 157 432
25.92922 2.470774
5 543 568
-
37.29632 0.396327
6 702 023
14.56212 0.437876
7 384 16
-
25.45559 10.45559
8 62 62
-
23.56107 0.361079
9 927 267
31.61277 0.587223
10 623 773
21.19293 3.707066
11 31 898
16.45664 1.743359
12 077 228
40.61173 1.488268
13 165 346
33.98092 3.319077
14 239 608
-
29.24463 2.244630
15 006 063

b. Inferences: 1. Fire damage = 11.72035 + 4.736292 * distance between residence and fire station
Since distance between residence and fire station would not be zero practically. Intercept b is of little
meaning individually though it would affect the overall damage. For one unit increase in distance fire
damage would increase by 4.73 units.
2. R2 = 0.835 which shows the model is a good approximation.
3. Very small values of p (considering α=0.05) indicate that slope is not zero (H0: Slope=0), thus supporting
linear relationship.
4. tstat = 8.11. For α=0.05 and degrees of freedom = n-2 = 15-2 = 13, critical value of t= 2.1604 < 8.11. Thus,
H0 is rejected. Thus a linear relationship.
5. A confidence interval of 95% for the slope 3.47≤b≤5.99 indicates a constant linear relationship as there
is no sign change and for 1 unit of increase in distance the damage caused by fire is supposed to increase
by at least 3.47 but not more than 5.99.