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    Simple Linear Regression of Mean Disposable Income

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    Leasing agents from the Triangle Mall Management Corporation have suggested that Sunflowers Apparel considered several locations in some of Triangles newly renovated lifestyle malls that cater to shoppers with higher than mean disposable income. Although the locations are smaller than the typical Sunflower locations, the leasing agents argue that higher than mean disposable income in the surrounding community is a better predictor of higher sales than store size. The leasing agents maintain that sample data from 14 Sunflower stores prove that this is true.

    Store Average Disposable Income($000) Annual Sales
    1 22.3 3.7
    2 36.6 3.9
    3 55.5 6.7
    4 46.7 9.5
    5 32.4 3.4
    6 31.7 5.6
    7 41.6 3.7
    8 21.4 2.7
    9 44.4 5.5
    10 34.1 2.9
    11 51.8 10.7
    12 45.1 7.6
    13 52 11.8
    14 49.2 4.1

    Because Triangle Mall Management establishes its centers only in areas of exceptional affluence, those in which disposal income is no less than 65K dollars, we project, based on your 14-store sample, that Sunflower shops in our developments will do no less than 10.6 million dollars in sales (calculated using the regression intercept -1.94 and the regression coefficient 0.193). We note that some of stores in your sample do much better than this and we would expect the same for any stores established in Triangle developments.
    1. Should mean disposable income be used to predict sales based on the sample of 14 Sunflower stores?
    2. Should the management of Sunflowers accept the claims of Triangle's leasing agents? Why or why not?
    3. Is it possible that the mean disposable income of the surrounding area is not an important factor in leasing new locations? Explain.
    4. Are there any other factors not mentioned by the leasing agents that might be relevant to the store leasing decision?

    Please help with the four listed above questions.

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    Solution Preview

    1. Yes, mean disposable income should be used to predict sales in this question.

    2. Yes, the management of Sunflowers should accept the claims of Triangle's leasing agents ...

    Solution Summary

    The solution gives detailed discussion on some issues while performing simple regression analysis.