Application of simple linear regression analysis to the estimation of a demand equation has yielded the following:
Q = 44 - 11P
If the current product price is P = $1 and the quantity sold per time period is Q = 30, then the error (e) for the current time period is equal to
A) 3
B) 11
C) 29
D) 33

Question

Quizplus · Accepted Answer

The error (e) is calculated as the difference between the actual quantity sold (Q) and the predicted quantity (Q̂) from the regression equation. Substituting P = $1 into the equation gives Q̂ = 44 - 11(1) = 33. The actual Q is 30, so the error e = Q - Q̂ = 30 - 33 = -3. Since the question asks for the absolute value, the error is 3.

Application of Simple Linear Regression Analysis to the Estimation of a Demand