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Greetings Sir.
I have a small doubt in the Topic of Linear Regression and High Low.1) As in both the approach we assume that there is a linear relationship between 2 variables.
Does this means that we are assuming that any change in Dependent variable is only because of change in independent variable.2) “Regression Analysis assumes that historical behaviour of data continues in foreseeable future”
Does this means that under Regression Analysis we assume that the nature behaviour will be the same in the sense that.
There could be a step-up in Fixed cost or any increase or decrease in cost (Fixed or variable) because of Taxation, Govt. Subsidies etc. in future which is not taken into consideration1. Both methods assume that the relationship is more or less linear (but not necessarily perfectly linear). The high low method only takes two values and then assumes linearity, whereas regression looks at all of the values and finds the closest linear relationship.
2. When used to forecast for the future, regression analysis assumes the the same relationship continues in the future. This might not be the case because of factors that might change in the future (such as those you have mentioned).
Have you watched my free lectures on both of these topics? They are in the Paper MA section of this website because the syllabus for these two topics is the same for both Paper MA and Paper PM (and so is revision from Paper MA).
Thank you Sir and yes I have watched your videos.
Sir for 1st Point, in Study Text it has been mentioned as disadvantage that “it assumes that the activity is the only factor affecting the cost).
So doesn’t that mean that we are assuming that only factor impacting the dependent variable is the Independent variable.
Yes, that is true. We make that assumption but in practice there could be other factors affecting things.
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