1. a. The scatter chart with weight as the independent variable follows.

10000
9000
8000
7000
6000
Price

5000
4000
3000
2000
1000
0
0.0 5.0 10.0 15.0 20.0
Weight

This scatter chart indicates there may be a negative linear relationship between weight and price.
Lighter bicycles are generally expected to be more expensive, and this scatter chart is consistent with
what would be expected.

b. The following Excel output provides the estimated regression equation that could be used to estimate
the price (y) given the bicycle weight (x).

The estimated simple linear regression equation is yˆ  28818.0037  1439.0064 x .

c. First we check the conditions necessary for valid inference in regression. The Excel plot of the
residuals and weight follows.
 Weight Residual Plot
2000

1000
Residuals

0
0.0 5.0 10.0 15.0 20.0
-1000

-2000
Weight

Because we are working with only 10 observations, assessing the conditions necessary for inference
to be valid in regression is extremely difficult. However, this scatter chart does not provide strong
evidence of a violation of the conditions, so we will proceed with our inference.

The p-value associated with the estimated regression parameter b1 is 2.14888E-05. Because this p-
value is less than the 0.05 level of significance, we reject the hypothesis that 1 = 0. We conclude
that there is a relationship between the weight and price of the bicycles, and our best estimate is that
an increase in weight of one pound corresponds to a price decrease of $1439.01. The price of a
racing bicycle is expected to increase as the weight of the bicycle decreases, so this result is
consistent with what is expected.

The estimated regression parameter b0 suggests that when the weight of a bicycle is zero pounds, the
price is $28,818.00. This result is obviously not realistic, but this parameter estimate and the test of
the hypothesis that 0 = 0 are meaningless because the y-intercept has been estimated through
extrapolation (there is no bicycle in the sample data with a weight near zero pounds).

d. The coefficient of determination r2 is 0.8637, so the regression model estimated in part (b) explains
approximately 86% of the variation in the prices of the bicycles in the sample.

a. The scatter chart with hours spent studying as the independent variable follows.
 120

100
Total Points Earned
80

60

40

20

0
0 20 40 60 80 100 120
Hours Spent Studying

This scatter chart indicates there may be a positive linear relationship between hours spent studying
and total points earned. Students who spend more time studying generally earn more points, and this
scatter chart is consistent with what is expected.

b. The following Excel output provides the estimated regression equation showing how total points
earned (y) is related to hours spent studying (x).

The estimated simple linear regression equation is yˆ  8.6742  0.8014 x .

c. First we check the conditions necessary for valid inference in regression. The Excel plot of the
residuals and hours spent studying follows.
 Hours Spent Studying Residual Plot
20

10
Residuals

0
0 20 40 60 80 100 120
-10

-20
Hours Spent Studying

The residuals at each value of hours spent studying appear to have a mean of 0, have similar
variances, and be concentrated around 0. The conditions necessary for inference to be valid in
regression appear to be satisfied, and so we will proceed with our inference.

The p-value associated with the estimated regression parameter b1 is 1.09619E-60. Because this p-
value is less than the 0.01 level of significance, we reject the hypothesis that 1 = 0. We conclude
that there is a relationship between hours spent studying and total points earned, and our best
estimate is that a one hour increase in hours spent studying corresponds to an increase of 0.8014 in
total points earned. This result is consistent with what would be expected.

The estimated regression parameter b0 suggests that when a student spends zero hours studying, the
total points earned by the student is 8.6742. This parameter estimate and the test of the hypothesis
that 0 = 0 are meaningless because the y-intercept has been estimated through extrapolation (there is
no observation in the sample data with hours of studying near zero).

(a) No, the data appear to have no consistent pattern.

1 2 3 4 5 6 7 8 9 10 11 Forecast

Demand 7 9 5 9.0 13.0 8.0 12.0 13.0 9.0 11.0 7.0

(b) 7.0 7.7 9.0 10.0 11.0 11.0 11.3 11.0 9.0

(c) 6.4 7.8 11.0 9.6 10.9 12.2 10.5 10.6 8.4

 His choice is between 40, 50, 60 and 70

 The actual demand can also vary between 40, 50, 60 and 70 with the probabilities as shown in the table -
e.g. P(demand = 40) is 0.1.
 The table then shows the profit or loss - for example, if he chooses to make 70 but demand is only 50, then
he will make a loss of 34