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Ejercicios del mundo real

LINEAR REGRESSION AND CORRELATION


12-64
A man is interested in seeing if the rent amount for his apartments is typical. He took a random
sample of 11 rents and apartment sizes in similar complexes. The data are as follows:

Rent 230 190 450 310 218 185 340 245 125 350 280
(dollars)
No. 2 1 3 2 2 2 2 1 1 2 2
Rooms
a) Develop the linear regression equation that best describes this data.
b) Calculate the coefficient of determination.
c) Forecast the rent for a two-bedroom apartment.

12-68
Dave Proffitt, a second year student of the Master in Marketing, prepares a study of companies that
entered the stock market for the first time. He wants to know if there is a significant relationship
between the size of the investment offer (in millions of dollars) for the initial investors and the stock
price.

a) Given the following data, develop the linear regression equation that best fits the data.

b) Calculate the determination and correlation coefficients. Considering these results, should Dave
use the linear regression equation for predictive forecasting purposes or should he look for
additional explanatory variables?

Investment Offer (Millons) Stock Price

108.00 12.00
4.40 4.00
3.50 5.00
3.60 6.00
39.00 13.00
68.40 19.00
7.50 8.50
5.50 5.00
375.00 15.00
12.00 6.00
51.00 12.00
66.00 12.00
10.40 6.50
4.00 3.00

Energy Reform

The Energy Reform was presented by the President of Mexico, Enrique Peña Nieto, on
August 12, 2013, approved by the Senate of the Republic on December 11, 2013 with 95
votes in favor and 28 against, and by the Chamber of Deputies on December 12 with 354
votes in favor and 134 against. The reform was declared Constitutional by the Permanent
Commission on Wednesday, December 18, with the approval of 24 congresses of the
different states.

The Energy Reform proposed by the government of Enrique Peña Nieto, proposes a change
in Petróleos Mexicanos (Pemex) through the modification of articles 25, 27 and 28 of the
Constitution, in order that foreign investments that would come through utility shared
contracts, opening the energy and electric sector to the private initiative.

The changes intend that Article 27 of the Constitution be retaken in its entirety by the Senate
as it was in the Cardenista era, to reform the energy sector. Thus, the State may enter into
"shared utility" contracts, without losing control of energy sources, which would be
administered by government regulators and associated with individuals through the
Comprehensive Contracts.

The Energy Reform seeks the following fundamental objectives:

• Maintain the property of the Nation on the hydrocarbons that are in the subsoil.
• Modernize and strengthen, without privatizing, Pemex and the Federal
Electricity Commission as productive enterprises of the 100% Mexican state.
• Allowing the Nation to exercise exclusively the planning and control of the
national electricity system, for the benefit of a competitive system that allows to
reduce the prices of electricity.
• Have a greater supply of energy at better prices.
• Strengthen long-term savings through the creation of the Mexican Petroleum
Fund for Stabilization and Development, for the benefit of future generations.
• Promote development with social responsibility and protecting the environment.
• Attract investment to the Mexican energy sector to boost the development of the
country.
• Reduce financial, geological and environmental risks in oil and gas exploration
and extraction activities.

Background

These objectives would be translated into concrete benefits for Mexicans.

It is known that oil production went from 3.4 million barrels per day in 2004 to 2.5 million
barrels per day in 2013 and since the approval of the reform the average daily production (in
thousands of barrels) has behaved as follows the year 2016 and 2017.

Average Oil Production (Thousands of Average Oil Production (Thousands of


Month
barrils) in 2016 barrils) in 2017

ene-16 2,259 2,020

feb-16 2,241 2,016

mar-16 2,217 2,018

abr-16 2,177 2,012

may-16 2,174 2,020

jun-16 2,178 2,008

jul-16 2,157 1,986

ago-16 2,144 1,930

sep-16 2,113 1,730

oct-16 2,103 1,902

nov-16 2,072 1,867


dic-16 2,035 1,873

a) Graph the average daily production during the months of 2016 and 2017. What can
you conclude from the graph?

We can conclude that the correlation is positive. The determination (r^2) gives 0.99052
therefore, the correlation (r ) gives 0.9949, which exactly confirms the positivity. However,
if the dots are closer to the line, that means a strong correlation, and in here we can observe
how the dots are aligned to the tendency line, therefore, I would say this is a strong positive
correlation.

b) From the data generate a linear regression equation.


𝑦 = 𝑎 + 𝑏𝑥

c) Graph the regression line together with the average daily production during the
months corresponding to 2016 and 2017
d) Project the average daily production during the last quarter (month by month) of
2018 using the linear regression equation.
e) For the projection found by the regression for the last quarter of 2018, it would have
been appropriate to say: "If the trend established at the beginning of 2016 persists,
oil production would be located at 3 million barrels in 2018 as stated in the Energetic
reform". Justify your answer.
f) You consider that an appropriate statement for the 2013 analysis would have been:
"If the production in 2004 had an average level of 3.4 million barrels per day, with
the same slope, the daily production of oil in 2013 would had been located at 2.5
million barrels per day. " Justify your answer using the linear regression equation.

g) According to your forecast equation. What would be your estimate of the average
daily production of barrels for the first 5 months of 2019? Contrast them with the
real data. Are your estimates correct?
OPERATION AND PRODUCTION COSTS

Each business analyst must have the ability to estimate the relationship between important
business variables. The variable that analysts try to predict is called the dependent variable
and the variable that uses for the prediction is called the independent variable.

Suppose you run a plant that makes refrigerators. The international headquarters tells you
how many refrigerators to produce each month. For budget purposes, you want to forecast
your monthly operating costs. The following table contains data on the units produced and
the monthly operating costs of the plant for a period of 14 months.

It is important to predict the monthly operating costs of the units produced, which will help
the plant manager determine the operating budget and better understand the cost of producing
refrigerators.

Monthly Operating
Month Units Produced
Expenses in Pesos

1 1260 123,118
2 1007 99,601

3 1296 132,000

4 873 80,000

5 532 52,000

6 476 58,625

7 482 74,624

8 1273 110,000

9 692 81,000

10 690 73,507

11 564 95,024

12 470 88,004

13 675 70,000

14 870 110,253

15 1100 ?

a) Given the previous data, develop the linear regression equation that
best fits the data.

𝑦 = 𝑎 + 𝑏𝑥
𝑦 = 37,894.10 + 64.26869731𝑥 units produced

b) Which is the intersection of this linear function with Y axis, and which is
its interpretation?
The prognostic is that it will be more aligned to the tendency line,
however this shows the relation between the two data (x,y) and the
tendency line shows it is positive and strong. The units correspond to
the budget, therefore the company is performing very well.

c) Which is the slope of the linear function and what does it indicate?

𝑦2 − 𝑦1
𝑚=
𝑥2 − 𝑥1
123,118 − 1260
𝑚=
99,601 − 1007
𝑚 = 1.24
If there is a positive slope this means there is a direct relationship
between the units produced and the monthly operation expenses
(pesos).

d) Calculate the determination and correlation coefficients. Considering


these results, should you use the linear regression equation for
predictive forecasting purposes or should you look for additional
explanatory variables?
𝑟 2 = 0.688202841
𝑟 = 0.8295

I would definitely choose the linear regression equation since the


correlation gave me 0.82 and when it is above 70, these shows it is a
high correlation and a positive one, considering that the result was 0.82,
this completely accomplish my point of the strong positive correlation
between these two data.

e) Predict the operating costs if the production of the plant is 1100 units.

𝑦 = 𝑎 + 𝑏𝑥
𝑦 = 37,894.10 + 64.26869731 (1100)
𝑦 = 108,589.667 𝑝𝑙𝑎𝑛𝑡𝑠 𝑢𝑛𝑖𝑡𝑠

Good luck!

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