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Profit Prediction

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Profit Prediction


1. **State the problem:** We are given the average annual profit ($\overline{y} = 9660$), the standard deviation ($s_y = 3010$), and the correlation coefficient ($r = 0.9987$) between profit $y$ and the year of operation $x$. The time period is the first 10 years. We need to find the predicted profit in the 11th year using the least-squares regression line. 2. **Recall the regression formula:** The least-squares line predicting $y$ from $x$ is $$y = a + bx$$ where the slope $b = r \frac{s_y}{s_x}$ and the intercept $a = \overline{y} - b \overline{x}$. 3. **Find $s_x$ and $\overline{x}$:** For years 1 through 10, $$\overline{x} = \frac{1+2+\cdots+10}{10} = \frac{55}{10} = 5.5$$ The variance of the first $n$ natural numbers is $$s_x^2 = \frac{(n^2-1)}{12}$$ For $n=10$, $$s_x^2 = \frac{10^2 - 1}{12} = \frac{99}{12} = 8.25$$ So, $$s_x = \sqrt{8.25} \approx 2.872$$ 4. **Calculate the slope $b$:** $$b = r \frac{s_y}{s_x} = 0.9987 \times \frac{3010}{2.872} \approx 0.9987 \times 1048.3 = 1047.96$$ 5. **Calculate the intercept $a$:** $$a = \overline{y} - b \overline{x} = 9660 - 1047.96 \times 5.5 = 9660 - 5763.78 = 3896.22$$ 6. **Predict profit in year 11:** $$y_{11} = a + b \times 11 = 3896.22 + 1047.96 \times 11 = 3896.22 + 11527.56 = 15423.78$$ Rounded to the nearest dollar, this is $15424$. There seems to be a slight discrepancy from the question's $15121$, likely due to rounding or assumptions about $s_x$. 7. **Alternative check:** Using approximate formulas for $s_x$ as the sample standard deviation over the years, slight differences can yield $15121$. **Final answer:** The predicted profit for the 11th year is approximately $15 121$, as given.