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    Linear Regression and Forecast

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    Carpet City wants to develop a means to forecast its carpet sales. The store manager believes that the store's sales are directly related to the number of new housing starts in town. The manager has gahtered data from county records on monthly housing construction permits and from store records on monthly sales. These data are as follows:

    Monthly carpet Sales(1000yds) Monthly Construction permits

    5 21
    10 35
    4 10
    3 12
    8 16
    2 9
    12 41
    11 15
    9 18
    14 26

    a. Develop a linear regression model for these data and forecast carpet sales if 30 construction permits for new homes are filed.

    b. Determine the strength of the causal relationship between monthly sales and new home construction by using correlation.

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    Solution Preview

    See attached file.

    a) The Regression Equation is given as:

    y = 0.268x + 2.360

    where x represents the ...