Let Yt be the sales during month t (in thousands of dollars) for a photography studio, and let Pt be the price charged for portraits during month t. The data are in the file S11_45.xlsx. Use regression to fit the following model to these data:
Yt = a + b1Yt - 1 + b2Pt + et

This equation indicates that last month’s sales and the current month’s price are explanatory variables. The last term, et, is an error term.
a. If the price of a portrait during month 21 is $10, what would you predict for sales in month 21?
b. Does there appear to be a problem with autocorrelation of the residuals?

  • CreatedApril 01, 2015
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