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The museum was located in a large city block containing a variety of stores. in late July 1992, a fire that started in one of these stores burned the entire block, including the museum. Fortunately, the museum had taken out insurance to cover the cost of rebuilding as well as lost revenue. as a general rule, insurance companies base their payment on how well the company performed in the past. However, the owners of the museum argued that the revenues were increasing, and hence they were entitled to more money under their insurance plan. The argument was based on the revenues and attendance figures of an amusement park, featuring rides and other similar attractions that had opened nearby. The amusement park opened in December 1991. the two entertainment facilities were operating jointly during the last 4 weeks of 1991 and the first 28 weeks of 1992 (the point at which the fire destroyed the museum). In April 1995, the museum reopened with considerably more features than the original one. The attendance figures for both facilities for December 1991 to October 1995 are listed in columns 1 (museum) and 2 (amusement park). During the period when the museum was closed, the data show zero attendance.

The owners of the museum argued that the weekly attendance from the 29th week of 1992 to the 16th week of 1995 should be estimated using the most current data (17th to 42nd week of 1995). The insurance company argued that the estimates should be based on the 4 weeks of 1991 and the 28 weeks of 1992, when both facilities were operating and before the museum reopened with more features than the original museum.

a. Estimate the coefficients of the simple regression model based on the insurance company’s argument. In other words, use the attendance figures for the last 4 weeks in 1991 and the nest 28 weeks in 1992 to estimate the coefficients. Then use the model to calculate point predications for the museum’s weekly attendance figures when the museum was closed Calculate the predicated total attendance.

b. Repeat part (a) using the museum’s argument that is, use the attendance figures after the reopening in 1995 to estimate the regression coefficients and use the equation to predict the weekly attendance when the museum was closed. Calculate the total attendance that was lost because of the fire.

c. Write a report to the insurance company discussing this analysis and include your recommendation about how much the insurance company should award the museum?

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