BIG DATA, BUSINESS ANALYTICS, ADVANCED IT AND DIGITAL

MANAGEMENT
DOCUMENT ON LINEAR REGRESSION QUESTIONS

Submitted By:

SHALU (MFM/18/923)

(MFM-III)

Under the Supervision of

Mr. KISLAY KASHYAP
Asst. Professor

IN PARTIAL FULFILLMENT OF THE POST GRADUATE DEGREE "MASTER OF FASHION MANAGEMENT

(MFM)

Submitted To:

Department of Fashion Management Studies (FMS)

National Institute of Fashion Technology (NIFT)

Mithapur, Near Jakkanpur Thana
Patna, PIN - 800001
Ph. 91 612 2340032, Fax: 2360078
Web: www.nift.ac.in
October, 2019

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 ACKNOWLEDGEMENT
In preparation of my assignment, I had to take the help and guidance of some respected persons,
who deserve my deepest gratitude. As the completion of this assignment gave us much pleasure, I
would like to show our gratitude to Asst. Professor Mr. Kislay Kashyap, our faculty of National
Institute of Fashion Technology, Patna for giving us good guidelines for our assignment
throughout numerous consultations. I would also like to expand my gratitude to all those who have
directly and indirectly guided us in writing this assignment. I express our warm thanks to our
classmates, juniors and local people have made valuable comments and suggestions on this paper
which gave us an inspiration to improve the quality of the assignment. I would not forget to thank
them for their encouragement and more over for their timely support and guidance till the
completion of our project work.

Students Signature: Shalu

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QUESTIONS: -

Use the data in WAGE file to estimate a simple regression explaining monthly salary (wage) in
terms of IQ score (IQ).

(1) Find the average salary and average IQ in the sample. What is the standard deviation of IQ?

Answer to the question no. (1)

Figure 1: Command inserted in R studio

Figure 2: Result of command input in R studio

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Average salary is about Rs.957.95 and average IQ is about 101.28. The sample standard
deviation of IQ is about 15.05, which is pretty close to the population value of 15.
(2) Estimate a simple regression model. Use this model to find the predicted increase in wage
for an increase in IQ of 15 points. Does IQ explain most of the variation in wage?
Answer to the question no. (2)

Figure 3: Command in R studio

Figure 4: Result of above command in R studio

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Simple Linear regression
Linear regression answers a simple question: Here we Can measure an exact relationship between
one target variables and a set of predictors i.e. Wages and IQ.
The simplest of probabilistic models is the straight-line model:
where
 y = Dependent variable (Wages)
 x = Independent variable (IQ)
 = random error component
 = intercept
 = Coefficient of x

Here, Wages= 116.99 + 8.30IQ

n = 935, R² = 0.096(result after command input in R studio)
An increase in IQ of 15 increases predicted monthly salary by 8.30(15) = Rs.124.50. IQ score
does not even explain 9.5% of the variation in wage.

 If change in IQ = 15 then variation in wages is only 9.5%, which is the (approximate)

proportionate change in predicted wage. Therefore, there is not a strong relationship between
two variables and hence IQ is not only the factors on which wages are dependent, so the
regression line doesn’t fit the data.

(3) Explain the interpretation of Multiple R-square in the output.

Answer to the question no. (3)

R-squared is a statistical measure of how close the data are to the fitted regression line. It is also
known as the coefficient of determination.
The more variance that is accounted for by the regression model the closer the data points will fall
to the fitted regression line. Theoretically, if a model could explain 100% of the variance, the fitted
values would always equal the observed values and, therefore, all the data points would fall on the
fitted regression line.

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Consider the following plot:

Figure 5: Plot for Regression line

The line showed by the left arrow is the regression line that depicts where the predicted values of
Salary lies with respect to IQ along the x-axis. The upper dotted point represents the actual values
of the salary which is the observed y value with respect to IQ. The middle-dotted point represents
the predicted value of salary for an observed value of experience which is denoted by y^.

R squared can now be calculated by: R² = 1-SSR/SST

IQ is not the only factor that affects wages. As shown in Figure 4, even for workers with the same
IQ, there is remarkable variation in wages. Surely, some of this variation is due to work experience,
hours, education, age, tenure, and marital status, etc.

 For example, one could think of wages as a function of IQ and work experience:
Wage = f (IQ, Experience)
The longer one spends on a job, the better one gets. If people are paid for their productivity, then
workers with more work experience should be more productive, and therefore, paid more.
ΔWage / ΔExperience > 0

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From the analysis we can observe that R²= 0.095. It means that variation in IQ explains only 9.5%
of variables in wage, so the level of dependency between the independent variable i.e. IQ and the
the dependent variable i.e. Wage is only 9.5%. Hence, they are not closely related.

Further Explanation is given below in Images: -

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