Discuss the below:
Q: Let Yt be the sales during month t (in thousands of dollars) for a photography studio, and let Pt be the price charged for portraits during month t. The data are shown below: Use regression to fit the following model to these data:
Yt = a + b1Yt-1 + b2Pt + et
This equation indicates that last month's sales and the current month's price are explanatory variables. The last term, et, is an error term.
If the price of a portrait during month 21 is $10, what would you predict for sales in month 21?
Does there appear to be a problem with autocorrelation of the residual? Explain your answer.
| Sales |
Price |
| $400,000 |
$15 |
| $1,042,000 |
$12 |
| $1,129,000 |
$24 |
| $1,110,000 |
$18 |
| $1,336,000 |
$18 |
| $1,363,000 |
$30 |
| $1,177,000 |
$27 |
| $603,000 |
$24 |
| $582,000 |
$36 |
| $697,000 |
$27 |
| $586,000 |
$24 |
| $673,000 |
$27 |
| $546,000 |
$30 |
| $334,000 |
$33 |
| $27,000 |
$24 |
| $76,000 |
$27 |
| $298,000 |
$30 |
| $746,000 |
$18 |
| $962,000 |
$21 |
| $907,000 |
$24 |