A simple linear regression, Sales = β₀ + β₁ Advertising + ε, is estimated using cross-sectional data from 10 firms. The resulting residuals e, along with the values of the explanatory variable Advertising (x, in $100s), are shown in the accompanying table. a. Graph the residuals e against Advertising (x) and look for any discernible pattern.
B) Which assumption is being violated? Discuss its consequences and suggest a possible remedy.

Question

A simple linear regression, Sales = β₀ + β₁ Advertising + ε, is estimated using cross-sectional data from 10 firms. The resulting residuals e, along with the values of the explanatory variable Advertising (x, in $100s), are shown in the accompanying table.

A simple linear regression, Sales = β<sub>0</sub> + β<sub>1</sub> Advertising + ε, is estimated using cross-sectional data from 10 firms. The resulting residuals e, along with the values of the explanatory variable Advertising (x, in $100s), are shown in the accompanying table. a. Graph the residuals e against Advertising (x) and look for any discernible pattern. B) Which assumption is being violated? Discuss its consequences and suggest a possible remedy.

a. Graph the residuals e against Advertising (x) and look for any discernible pattern.
B) Which assumption is being violated? Discuss its consequences and suggest a possible remedy.

Quizplus · Accepted Answer

The Answer of A simple linear regression, Sales = β₀ + β₁ Advertising + ε, is estimated using cross-sectional data from 10 firms. The resulting residuals e, along with the values of the explanatory variable Advertising (x, in $100s), are shown in the accompanying table. a. Graph the residuals e against Advertising (x) and look for any discernible pattern. B) Which assumption is being violated? Discuss its consequences and suggest a possible remedy.

A Simple Linear Regression, Sales = β0 + β1 Advertising

A Simple Linear Regression, Sales = β₀ + β₁ Advertising