TABLE 12-1
A large national bank charges local companies for using their services. A bank official reported the results of a regression analysis designed to predict the bank's charges (Y) measured in dollars per month for services rendered to local companies. One independent variable used to predict service charges to a company is the company's sales revenue (X) measured in millions of dollars. Data for 21 companies who use the bank's services were used to fit the model:
Y1 - β0 + β1X1 + εi
The results of the simple linear regression are provided below.
Y = -2,700 + 20 X, SYX = 65, two-tail p-value = 0.034 (for testing β1)
-Referring to Table 12-1, interpret the estimate of β₀, the Y-intercept of the line.
A) All companies will be charged at least $2,700 by the bank.
B) There is no practical interpretation since a sales revenue of $0 is a nonsensical value.
C) About 95% of the observed service charges fall within $2,700 of the least squares line.
D) For every $1 million increase in sales revenue, we expect a service charge to decrease $2,700.

Question

Quizplus · Accepted Answer

The Y-intercept of -2,700 suggests that if a company had $0 in sales revenue, the model predicts a charge of -$2,700, which is not practical or possible. Hence, it has no meaningful interpretation in this context.

TABLE 12-1 A Large National Bank Charges Local Companies for Using Their