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Examples 6.9.2(ii) · Example 12
Q.

Based on the data available for the sales of an item in a district, by the method of least squares

  1. tabulate the trend values
  2. find the best fit for a straight-line trend
  3. compute expected sale trend for year 2002
Year199619971998199920002001
Sales (In lakh ₹)6.55.34.36.15.67.8
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Fit y^=a+bx\hat y=a+bx with xx in half-year units about the mid-point 1998.5; a=5.933, b=0.1314a=5.933,\ b=0.1314, then extrapolate to 2002 (x=7x=7) to get about ₹6.85 lakh.

y^=a+bx,a=∑yn,b=∑xy∑x2\hat y=a+bx,\qquad a=\frac{\sum y}{n},\qquad b=\frac{\sum xy}{\sum x^2}

yy = sales (lakh ₹); with an even number of years, xx is taken in half-year units from the mid-point so that ∑x=0\sum x=0.

  1. Set up the table (x=−5,−3,−1,1,3,5x=-5,-3,-1,1,3,5 in half-year units, origin 1998.5):
Yearyyxxx2x^2xyxy
19966.5−5-525−32.5-32.5
19975.3−3-39−15.9-15.9
19984.3−1-11−4.3-4.3
19996.11116.16.1
20005.633916.816.8
20017.8552539.039.0
Total35.6\mathbf{35.6}0070\mathbf{70}9.2\mathbf{9.2}
  1. Constants: a=∑yn=35.66=5.933a=\dfrac{\sum y}{n}=\dfrac{35.6}{6}=5.933 and b=∑xy∑x2=9.270=0.1314b=\dfrac{\sum xy}{\sum x^2}=\dfrac{9.2}{70}=0.1314.

  2. (ii) Best-fit straight-line trend: y^=5.933+0.1314 x\hat y = 5.933 + 0.1314\,x (x in half-year units from 1998.5).

  3. (i) Tabulate the trend values:

Yearxxy^=5.933+0.1314x\hat y = 5.933 + 0.1314x
1996−5-55.933−0.657=5.285.933-0.657=5.28

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