Question

The fuel consortium chairman at an airport recorded the cost per barrel of crude oil and the cost per barrel of jet fuel each week.
After plotting his results, the chairman noticed that the relationship between the two variables was fairly linear, so he used the data to calculate the following least squares regression equation for predicting the cost, in dollars, per barrel of jet fuel from the cost, in dollars, per barrel of crude oil.


y^=2+7/6x


What is the residual of a week in which a barrel of crude oil costs $60 and a barrel of jet fuel costs 78$. THE ANSWER IS $6!!

Answer 1

Answer:

Residual for the week will be $6.

Step-by-step explanation:

Regression equation predicting the per barrel cost of jet fuel is,

$\hat{y}=2+\frac{7}{6}x$

where, $\hat{y}$ = cost of jet fuel

x = cost of crude oil per week

If the cost of crude oil in any week = $60

Then predicted cost of jet fuel,

$\hat{y}=2+[\frac{7}{6}\times (60)]$

  = 2 + 70

  = $72

Residual price = Actual cost - predicted cost

                        = $78 - $72

                        = $6

Therefore, residual price will be $6.