A simple linear regression, y = 0 + 1 x + , is estimated w ith cross-sectional data. The resulting residuals e, along w

A simple linear regression, y = β 0 + β1 x + ε, is estimated w ith cross-sectional data. The resulting residuals

e, along w ith the values of the explanatory variable x, are shown below.

1 2 5 7 10 14 15 20 24 30

− 2 1 − 3 2 4 − 5 − 6 8 11 − 10

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 possible remedy.