Estimating the costs of drilling oil wells is an important consideration for the oil industry. DS 12.2.1 contains the total costs and the depths of 16 offshore oil wells located in the Philippines (taken from "Identifying the major determinants of exploration drilling costs: A first approximation using the Philippine case" by Gary S. Makasiar, Energy Exploration and Exploitation. 1985).
(a) Fit a linear regression model with cost as the dependent variable and depth as the explanatory variable.
(b) What does your model predict as the cost increase for an additional depth of 1000 feet?
(c) What cost would you predict for an oil well of 10.000 feet depth?
(d) What is the estimate of the error variance?
(e) What could you say about the cost of an oil well of depth 20,000 feet?
(This problem is continued in Problems 12.3.3, 12.4.4, 12.5.3, 12.6.5. 12.7.1, and 12.9.3.)