Linear regression model describing the relationship between the carat weight and price of very high quality diamonds is summariz
ed below. A diamond seller lists a very high quality diamond weighing 0.8 carats at a price of $10,999. Does this model over- or under-predict the price of this diamond? Select the option below that best summarizes the answer.
A. The model under-predicts the price of this diamond because the residual is positive.
B. The model over-predicts the price of this diamond because the residual is positive.
C. The model over-predicts the price of this diamond because the residual is negative.
D. We do not have enough information to answer this question.
E. The model under-predicts the price of this diamond because the residual is negative.
A. The model under-predicts the price of this diamond because the residual is positive.
Step-by-step explanation:
The diamond seller has listed its 0.8 weighting diamonds at a price of $10,999. The price of the diamond is set as the market maker. The model is used to predict the price of the diamonds. This model has under predicted the value of diamonds and actual price of diamonds must be higher.
