Question: Representing a large auto dealer a buyer attends car auctions

Representing a large auto dealer, a buyer attends car auctions. To help with the bidding, the buyer built a regression equation to predict the resale value of cars purchased at the auction. The equation is
Estimated Resale Price ($) = 22,000 – 2,150 Age (years),
with r2 = 0.48 and se = $3,100
(a) Which is more predictable: the resale value of one five-year-old car, or the average resale value of a collection of 25 cars, all of which are five years old?
(b) According to the buyer’s equation, what is the estimated resale value of a five-year-old car? The average resale value of a collection of 25 cars, each five years old?
(c) Could the prediction from this equation overestimate or underestimate the resale price of a car by more than $2,500?

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  • CreatedJuly 14, 2015
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