TABLE 14-5
A microeconomist wants to determine how corporate sales are influenced by capital and wage spending by companies. She proceeds to randomly select 26 large corporations and record information in millions of dollars. The Microsoft Excel output below shows results of this multiple regression.
-Referring to Table 14-5, one company in the sample had sales of $20 billion (Sales = 20,000). This company spent $300 million on capital and $700 million on wages. What is the residual (in millions of dollars) for this data point?
A) 874.55
B) 622.87
C) -790.69
D) -983.56

Question

TABLE 14-5
A microeconomist wants to determine how corporate sales are influenced by capital and wage spending by companies. She proceeds to randomly select 26 large corporations and record information in millions of dollars. The Microsoft Excel output below shows results of this multiple regression. 
-Referring to Table 14-5, one company in the sample had sales of $20 billion (Sales = 20,000). This company spent $300 million on capital and $700 million on wages. What is the residual (in millions of dollars) for this data point?
A) 874.55 
B) 622.87 
C) -790.69 
D) -983.56

Quizplus · Accepted Answer

To find the residual, we first use the regression equation:
Sales = 485.247 + 1.585(Capital) + 0.569(Wages)
Plugging in the values for the company in question, we get:
Sales = 485.247 + 1.585(300) + 0.569(700) = 998.376
The actual sales for this company were $20 billion, or 20,000 million dollars. Therefore, the residual is:
Residual = Actual sales - Predicted sales
Residual = 20,000 - 998.376 = -19,001.624 million dollars
Rounded to two decimal places, this is -19,001.62 million dollars, or -790.69 million dollars when expressed in millions of dollars. Thus, the correct answer is C.

TABLE 14-5 A Microeconomist Wants to Determine How Corporate Sales Are Influenced