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For the following exercises, consider this scenario: The profit of a company decreased steadily over a ten-year span. The following ordered pairs show dollars and the number of units sold in hundreds and the profit in thousands of over the ten-year span (number of units sold, profit) for specific recorded years: \((46,250),(48,225),(50,205),(52,180),(54,165)\) Use linear regression to determine a function \(y\) where the profit in thousands of dollars depends on the number of units sold in hundreds.

Short Answer

Expert verified
The linear function is \(y = -16.25x + 1017.5\).

Step by step solution

01

Understand the Data

We have five ordered pairs: \((46,250), (48,225), (50,205), (52,180), (54,165)\). The first number in each pair is the number of units sold in hundreds, and the second number is the profit in thousands of dollars. We need to use linear regression to find a linear function \(y = mx + b\) that fits this data.
02

Calculate the Mean Values

To use linear regression, first calculate the mean of the units sold, \(\bar{x}\), and the mean of the profits, \(\bar{y}\). Calculate \(\bar{x} = \frac{46 + 48 + 50 + 52 + 54}{5} = 50\) and \(\bar{y} = \frac{250 + 225 + 205 + 180 + 165}{5} = 205\).
03

Calculate the Slope of the Line (m)

The slope \(m\) can be calculated using the formula \(m = \frac{\sum{(x_i - \bar{x})(y_i - \bar{y})}}{\sum{(x_i - \bar{x})^2}}\). Substitute the values:- \((46 - 50)(250 - 205) + (48 - 50)(225 - 205) + (50 - 50)(205 - 205) + (52 - 50)(180 - 205) + (54 - 50)(165 - 205) = -400 - 40 + 0 - 50 - 160 = -650\)- \((46-50)^2 + (48-50)^2 + (50-50)^2 + (52-50)^2 + (54-50)^2 = 16 + 4 + 0 + 4 + 16 = 40\)So, \(m = \frac{-650}{40} = -16.25\).
04

Calculate the Y-intercept (b)

With the slope \(m\) known, we can calculate the y-intercept \(b\) using \(b = \bar{y} - m\cdot\bar{x}\). Substitute \(m = -16.25\), \(\bar{x} = 50\), and \(\bar{y} = 205\):\(b = 205 - (-16.25 \times 50) = 205 + 812.5 = 1017.5\).
05

Write the Linear Regression Equation

The linear regression equation based on our calculations is \(y = -16.25x + 1017.5\). This equation describes the relationship between the number of units sold (in hundreds) and the profit (in thousands of dollars).

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Slope Calculation
Calculating the slope is a vital part of linear regression as it helps us understand how much the dependent variable changes with respect to the independent variable. The slope, denoted as \(m\), represents how many units the profit will increase or decrease for each additional unit of sale. In our case, the formula for the slope is: \[m = \frac{\sum{(x_i - \bar{x})(y_i - \bar{y})}}{\sum{(x_i - \bar{x})^2}}\] Here, \(x_i\) stands for each data point of units sold, and \(y_i\) for the corresponding data points of profit. We already know the mean values, \(\bar{x} = 50\) and \(\bar{y} = 205\). By substituting the values into the formula, we calculate \(m = -16.25\). This indicates that as the number of units sold increases by one hundred, the profit drops by $16,250.
Y-intercept
The y-intercept (or simply the intercept), denoted as \(b\), represents the point where the regression line crosses the y-axis. It is the predicted value of \(y\) when \(x\) is zero. In the context of our problem, this means the expected profit when no units are sold, which is a theoretical scenario. To find the y-intercept, you can use the formula: \[b = \bar{y} - m \cdot \bar{x}\] Plug in the mean y and x values, along with the slope, to calculate: \[b = 205 - (-16.25 \times 50) = 1017.5\] So, the y-intercept is 1017.5, which translates to a base profit of $1,017,500 in thousands.
Ordered Pairs
Ordered pairs are a fundamental way to represent relational data in mathematics. These pairs, formatted as \((x, y)\), are points on a graph where \(x\) is the input or independent variable, and \(y\) is the output or dependent variable. In our exercise, the ordered pairs like \((46,250)\) express the relationship between units sold (\(x\)) and profits (\(y\)). Understanding these pairs helps visualize data trends: - The first number represents units sold in hundreds.- The second number indicates profit in thousands. Given the pairs, linear regression aims to find the line that best fits this data, providing insights into how sales affect profits. Better comprehension of ordered pairs can significantly aid in data analysis and trend projection.
Profit Analysis
Profit analysis is crucial for understanding a company's financial well-being and predicting future performances. By analyzing ordered pairs with the help of linear regression, businesses can gauge how varying levels of sales are likely to impact profitability. In our scenario, profit in terms of units sold reveals negative growth, marked by a downward trend in the regression line. Analyzing the derived function: - \(y = -16.25x + 1017.5\)- The slope shows a persistent decline in profit. This indicates a challenge that the company faces: as sales increase by 100 units, profit decreases by $16,250. This could be due to factors like rising costs or market saturation. Thorough profit analysis enables better strategic planning and decision-making, addressing potential issues before they become critical.

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