Jensen Tire & Auto is in the process of deciding whether to purchase a maintenance contract for its new computer wheel alignment and balancing machine. Managers feel that maintenance expense should be related to usage, and they collected the following information on weekly usage (hours) and annual maintenance expense (in hundreds of dollars). Weekly Usage Annual Maintenance
(hours) Expense ($100s)
13 17.0
10 22.0
20 30.0
28 37.0
32 47.0
17 30.5
24 32.5
31 39.0
40 51.5
38 40.0
a) Use the data to develop an estimated regression equation that could be used to predict the annual maintenance expense for a given number of hours of weekly usage. What is the estimated regression model? Let x represent the number of hours of weekly usage.
b) Test whether each of the regression parameters β0 and β1 is equal to zero at a 0.05 level of significance. What are the correct interpretations of the estimated regression parameters? Are these interpretations reasonable?
c) How much of the variation in the sample values of annual maintenance cost does the model you estimated in part (b) explain?
d) If the maintenance contract costs $3000 per year, would you recommend purchasing it? Explain.