After some discussion, Williams thought it would be beneficial to begin her report with an overview of three different cost estimation tools: scatter diagrams, least-squares regression, and the high-low method. She would then present the results of her analysis of the past years monthly ticketing cost, which was driven largely by the number of tickets written. These results would be presented in the form of algebraic equations that were derived by the three tools just cited. The equations follow. (C denotes ticketing cost, and PT denotes number of passenger tickets written.)

Least-squares regression: C = $460,000 + $2.65PT

Scatter diagram: C = $375,000 + $2.60PT

High-low method: C = $317,000 + $2.80PT

Williams had analyzed data over the past 12 months and built equations on these data, purposely including the slowest month of the year (February) and the busiest month (November) so that things would tend to average out. She observed that November was especially busy because of Thanksgiving, passengers purchasing tickets for upcoming holiday travel in December, and the effects of a strike by Southeastern Airlines, Florida Internationals chief competitor. The lengthy strike resulted in many of Southeasterns passengers being rerouted on Florida International flights.

Question 1:

Assuming the use of least-squares regression, explain what the $460,000 and $2.65 figures represent?

Question 2:

Assuming the use of a scatter diagram, predict the cost of an upcoming month when Global American expects to write 670,000 tickets.

Question 3:

Did Williams err in constructing the equations on data of the past 12 months?