F I L E The fo llo w in g ta b le lists M a jo r Leagu e Baseball's (M LB's)

le a d in g p itch ers, th e ir e arn e d run a v e ra g e (ERA), an d th e ir salary (g ive n in m illio n s o f do llars) fo r 2 0 0 8 . T h e d a ta are also a v a ila b le on th e te x t w e b s ite , la b e le d M L B Pitchers.

ERA Salary (in $ millions)

J. Santana 2.53 17.0 C. Lee 2.54 4.0 T. Lincecum 2.62 0.4 C. Sabathia 2.70 11.0 R. Halladay 2.78 10.0 J. Peavy 2.85 6.5 D. M atsuzaka 2.90 8.3 R. Dem pster 2.96 7.3 B. Sheets 3.09 12.1 C. Hamels 3.09 0.5 Source: www.ESPN.com.

a. Use Excel to estim a te th e m o del: Salary = β0 + β1 ERA + ε

a n d in te rp re t th e c o e ffic ie n t o f ERA.

b. Use th e e s tim a te d m o d e l to p re d ic t salary fo r each player, g ive n his ERA. For e x a m p le , use th e sam p le regression e q u a tio n to p re d ic t th e salary fo r J. S antana w ith ERA = 2 .5 3 .

c. D erive th e co rre s p o n d in g resid uals an d e x p la in w h y th e residuals m ig h t be so h ig h .