Wishwell Tile Company uses the number of construction permits issued to help estimate demand (sales). The firm collected the following data on annual sales and number of construction permits issued in its market area:
No. of Construction Sales
Year Permits Issued (000) (1,000,000)
19X1 6.50 10.30
19X2 6.20 10.10
19X3 6.60 10.50
19X4 7.30 10.80
19X5 7.80 11.20
19X6 8.20 11.40
19X7 8.30 11.30
(a) Which variable is the dependent variable and which is the independent variable?
(b) Determine the estimated regression line.
(c) Test the hypothesis (at the .05 significance level) that there is no relationship between the variables.
(d) Calculate the coefficient of determination. Give an economic interpretation to the value obtained.
(e) Perform an analysis of variance on the regression including an F-test (at the .05 significance level) of the overall significance of the results.
(f) Suppose that 8,000 construction permits are expected to be issued in 19X8. What would be the point estimate of Phoenix Lumber Company's sales for 19X8?
(NOTE: This problem requires the use of statistical tables.)
The coefficient of determination is clarified in this solution.