A Simple Linear Regression, Sales = β₀ + β₁ Advertising

question 96

Essay

A simple linear regression, Sales = β₀ + β₁ Advertising + ε, is estimated using cross-sectional data from 10 firms. The resulting residuals e, along with the values of the explanatory variable Advertising (x, in $100s), are shown in the accompanying table. a. Graph the residuals e against Advertising (x) and look for any discernible pattern.
B) Which assumption is being violated? Discuss its consequences and suggest a possible remedy.

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Definitions:

International Competition

Involves the rivalry between entities from different countries in various fields such as sports, business, technology, and education, aiming to establish supremacy or achieve a particular goal on a global scale.

Subsidies

Financial support provided by governments to organizations, businesses, or individuals, often to support economic activities deemed beneficial or necessary.

Basic Economic Needs

Fundamental requirements including food, shelter, and clothing that must be met to sustain life and health.

Poverty

The state of having insufficient financial resources or access to necessities of life such as food, clean water, and shelter.