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Dear sir,
In one of your lectures concerning the chapter semi variable costs, for the coefficient of determination, you have said that “96% of changes in one variable are explained by changes in the other” and you have also said something about 4%. I do have watched the lecture twice but still has not understand what you have said about the 96% and 4%.
Could you explain to me in wordings?Thanks in advance.
If there was perfect correlation then the regression equation would work perfectly for every pair of observations – they would all lie exactly on a straight line.
If the coefficient of determination is 100% then this would be the case.
If the coefficient of determination is only 96% then it means that only for 96% of the pairs of observation does the regression equation work perfectly – for the other 4% of them it doesn’t.
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