PROBLEM SET 9 ECON 3060

THE EXPLANATORY POWER OF A LINEAR REGRESSION EQUATION

EX 1 A corporation administers an aptitude test to all new sales representatives.

Management is interested in the extent to which this test is able to predict their eventual
success. The accompanying table records average weekly sales (in thousands of dollars)
and aptitude test scores for a random sample of eight representatives.

Weekly Sales 8 12 28 24 18 16 15 12
Test Scores 55 60 85 75 80 85 65 55

(a) Estimate the linear regression of weekly sales on aptitude test scores.
(b) Find the predicted values, , and residuals, , for the least squares regression in
part (a).
(c) Find SST, SSR and SSE, and verify that SST=SSR+SSE.
(d) Using the results in part (c), find and interpret .
(e) Find directly the sample correlation coefficient between sales and aptitude test scores,
and verify that its square is equal to .

x y xy
55 8 440 3025 10.565
60 12 720 3600 12.585
85 28 2380 7225 22.685
75 24 1800 5625 18.645
80 18 1440 6400 20.665
85 16 1360 7225 22.585
65 15 975 4225 14.605
55 12 660 3025 10.565
560 133 9775 40350

e
-2.565 6.579 -6.06 36.724 64
-0.585 .342 -4.04 16.322 144
5.315 28.249 6.06 36.724 784
5.355 28.676 2.02 4.085 576
-2.655 7.102 4.04 16.322 324
-6.585 43.362 5.96 35.521 256
.395 1.560 -2.02 4.080 225
1.435 2.059 -6.06 36.724 144
116.526 186.497 2517