Answer to Question #204469 in Economics for Mitchelle

Question

An executive at a telecommunications company is interested in the relationship between an individual’s income and their mobile phone usage. He surveyed 10 mobile-phone users and recorded their annual incomes and time (in minutes) spent each week making national direct calls. The data is presented in sequence according to gross annual income.

a. Construct a scatter plot of the data above.

b. Develop a least squares regression line to predict the direct calls in minutes based on annual income.

c. What would be the predicted duration of direct call in minutes for an income of $48000?

d. What is the error value for an income of $76000?

Answer 1

The method of least squares (OLS) is a mathematical approach for estimating the parameters of models (for example, regression) based on experimental data, tests of random errors.

If the data are known with some error, then the approximate model is used instead of the unknown exact value. Therefore, the parameters should be calculated so as to minimize the difference between experimental data and theoretical (calculated using the proposed model).