In: Statistics and Probability
Consider the natural log transformation (“ln” transformation) of variables labour cost (L_COST), and total number of rooms per hotel (Total_Rooms). 4.1 Use the least squares method to estimate the regression coefficients b0 and b1 for the log-linear model 4.2 State the regression equation 4.3 Give the interpretation of the regression coefficient b1. 4.4 Give an interpretation of the coefficient of determination R2 . Also, test the significance of your model using the F-test. How, does the value of the coefficient of determination affect the outcome of the above test? 4.5 Test whether a 1% increase of the total number of rooms per hotel can increase the labour cost by more than 0.20%? Use the 5% level of significance for this test.
L_COST Total_Rooms
2.165.000 412
2.214.985 313
1.393.550 265
2.460.634 204
1.151.600 172
801.469 133
1.072.000 127
1.608.013 322
793.009 241
1.383.854 172
494.566 121
437.684 70
83.000 65
626.000 93
37.735 75
256.658 69
230.000 66
200.000 54
199.000 68
11.720 57
59.200 38
130.000 27
255.020 47
3.500 32
20.906 27
284.569 48
107.447 39
64.702 35
6.500 23
156.316 25
15.950 10
722.069 18
6.121 17
30.000 29
5.700 21
50.237 23
19.670 15
7.888 8
3.500 15
112.181 18
30.000 10
3.575 26
2.074.000 306
1.312.601 240
434.237 330
495.000 139
1.511.457 353
1.800.000 324
2.050.000 276
623.117 221
796.026 200
360.000 117
538.848 170
568.536 122
300.000 57
249.205 62
150.000 98
220.000 75
50.302 62
517.729 50
51.000 27
75.704 44
271.724 33
118.049 25
40.000 30
10.000 10
10.000 18
70.000 73
12.000 21
20.000 22
36.277 25
36.277 25
10.450 31
14.300 16
4.296 15
379.498 16
1.520 22
45.000 12
96.619 34
270.000 37
60.000 25
12.500 10
1.934.820 270
3.000.000 261
1.675.995 219
903.000 280
2.429.367 378
1.143.850 181
900.000 166
600.000 119
2.500.000 174
1.103.939 124
363.825 112
1.538.000 227
1.370.968 161
1.339.903 216
173.481 102
210.000 96
441.737 97
96.000 56
177.833 72
252.390 62
377.182 78
111.000 74
238.000 33
45.000 30
50.000 39
40.000 32
61.766 25
166.903 41
116.056 24
41.000 49
195.821 43
96.713 20
6.500 32
5.500 14
4.000 14
15.000 13
9.500 13
48.200 53
3.000 11
27.084 16
30.000 21
20.000 21
43.549 46
10.000 21
4.1 Use the least squares method to estimate the regression coefficients b0 and b1 for the log-linear model
b0=5.40738
b1(Total_Rooms..)=1.58207
4.2 State the regression equation
y predict(L_COST)=5.40738+1.58207*Total_Rooms
4.3 Give the interpretation of the regression coefficient b1.
When the total rooms increased by 1 unit, The labor cost will be increased by 1.58207 units.
4.4 Give an interpretation of the coefficient of determination R2 . Also, test the significance of your model using the F-test. How, does the value of the coefficient of determination affect the outcome of the above test?
Below is the summary of the model:
Call:
lm(formula = L_COST ~ ., data = wine)
Residuals:
Min 1Q Median 3Q Max
-2.9712 -0.4908 0.0837 0.5022 3.5097
Coefficients:
Estimate Std. Error t value Pr(>|t|)
(Intercept) 5.40738 0.35904 15.06 <2e-16 ***
Total_Rooms.. 1.58207 0.08699 18.19 <2e-16 ***
---
Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Residual standard error: 1.009 on 124 degrees of freedom
Multiple R-squared: 0.7273, Adjusted R-squared:
0.7251
F-statistic: 330.8 on 1 and 124 DF, p-value: < 2.2e-16
R^2 is 0.7273, which means Total_Rooms variable is able to explain 72.73% variation in the labor cost.
F-test P-value is close to 0 (< 2.2e-16), so the variable & model is more significant, below is the hypothesis
Null hypothesis - variables does not have any significance.
Alternate hypothesis - variables are having significance, thus important.
F-statistic test: 330.8 which is (explained variance) / (unexplained variance)