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Professor John Morton has just been appointed chairperson of the Finance Department at Westland University. In reviewing the department’s cost records, Professor Morton has found the following total cost associated with Finance 101 over the last five terms:

Term	Number of Sections Offered			Total Cost
Fall, last year		4		$	10,000
Winter, last year		7		$	13,000
Summer, last year		3		$	8,000
Fall, this year		2		$	7,500
Winter, this year		5		$	12,000

Professor Morton knows that there are some variable costs, such as amounts paid to graduate assistants, associated with the course. He would like to have the variable and fixed costs separated for planning purposes.

3-a. Assume that because of the small number of sections offered during the Winter Term this year, Professor Morton will have to offer eight sections of Finance 101 during the Fall Term. Compute the expected total cost for Finance 101.

3-b. Can you see any problem with using the cost formula from (2) above to derive this total cost figure?

Answer 1

Using the least regression formulas, we can estimate the equation of line

Hence the expected cost of the course in the coming fall with 8 sections is equal to 14696

b)

The problem with this approach of 8 section is that the data used for the computation never had such a big section class of students.

So, the data even using the formula of linear regression might be having variation with the actual cost.

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