A simple linear regression, y = 0 + 1x + , is estimated with cross-sectional data. The

A simple linear regression, y = β0 + β1x + ε, is estimated with cross-sectional data. The resulting residuals e along with the values of the explanatory variable x is shown in the accompanying table.

a. Graph the residuals e against the values of the explanatory variable x and look for any discernible pattern.
b. Which assumption is being violated? Discuss its consequences and suggest a possibleremedy.

Transcribed Image Text:

1 257 1014 15 20 24 30 -21-3 2 4-5-6 811-10