TA: Kara Olsen Business Analytics II

Week 2- Simple Linear Regression

Question 1

A company that holds the DVD distribution rights to movies previously released only in
theaters has the business objective of developing estimates of the sales revenue of DVDs.
Toward this goal, a company analyst plans to use box office gross to predict DVD sales
revenue. For 43 movies, the analyst collects the box office gross (in $millions) in the year
that they were released and the DVD revenue (in $millions) in the following year. Data is
stored in the file “Movie”.

1. Create a histogram of box office grosses. Use bin intervals of $50M.

Histogram of Movie Gross

20
Frequency

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10
5
0 Frequency
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150
200
250
300
350
400
0
50

More

Bin

2. Construct a scatter plot.

Scatter Plot
100.00
90.00
DVD Revenue ($millions)

80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 400.00 450.00
Movie Gross ($millions)
TA: Kara Olsen Business Analytics II

3. Assuming a linear relationship, use the lease-squares method to determine the

regression coefficients b0 and b1.

b0 = 4.844

b1 = 0.163

4. Interpret the meaning of the slope b1 in this problem.

For each increase of $1 million of box office gross, the predicted DVD revenue is
estimated to increase by $0.163 million.

5. Predict the mean sales revenue for a movie DVD that had a box office gross of $100
million.

DVD Revenue = 4.844 + 0.163*Gross

DVD Revenue = 4.844 + 0.163(100) = $21.159 million

6. What conclusions can you reach about predicting DVD revenue from movie gross?

Mean predicted increase in DVD sales is $163,100 for each million-dollar

increase in movie gross.

7. Produce the residuals plot.

Gross Residual Plot

50
40
30
20
Residuals

10
0
-10 0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 400.00 450.00
-20
-30
Gross