Utryit Hospital has been using linear regression to estimate costs. It has been using patient days to predict electricity cost, but a recent study has indicated that different types of patients consume substantially different amounts of electricity.

Therefore, it has decided to multiply its DRG case-mix index by the number of admissions to get a case-mix-weighted volume measure. The following information is available to you:

Using a hand-held calculator that has linear regression capability, or a computer, use simple linear regression to estimate the electricity cost next year. Also compute fixed cost, variable cost per unit, and the Rsquared for your forecast for the 1 996 electricity cost. Does your solution agree with that in the chapter, which used patient days? Do you think your estimate is adequate?

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Year Ending Electricity Case-Mix Cost Weighted June 30 (S) Admissions 1988 197,000 6.000 1989 199,000 6,400 1990 205,000 6,800 1991 223,000 7,000 1992 222,000 7,800 1993 227,000 7,600 1994 241,000 8,000 1995 238,000 8,000 1996 ? 7,400 (expected)