The value of a sports franchise is directly related to the amount of revenue that a franchise can generate. The accompanying data table gives the value and the annual revenue for a random sample of

28

of the MLB baseball teams in a recent year. Suppose you want to develop a simple linear regression model to predict franchise value based on annual revenue generated. Complete parts (a) through (e) below.

Team	Revenue	Value
Boston	434	2700
Chicago White Sox	269	1350
Cleveland	271	920
Detroit	275	1200
Houston	299	1450
Kansas City	246	950
Los Angeles Angels	350	1750
Minnesota	249	1025
New York Yankees	526	3700
Seattle	289	1400
Tampa Bay	205	825
Texas	298	1550
Toronto	278	1300
Arizona	253	1350
Atlanta	275	1500
Chicago Cubs	434	2650
Cincinnati	229	915
Colorado	248	1000
Los Angeles Dodgers	462	2750
Miami	206	940
Milwaukee	239	925
New York Mets	332	2000
Philadelphia	325	1650
Pittsburgh	265	1250
St. Louis	310	1800
San Diego	259	1125
San Francisco	428	2650
Washington	304	1600

b. Use the least-squares method to determine the regression coefficients

b0=

b1.=

Part 3

c. Interpret the meaning of b0 and b1 in this problem. Choose the correct answer below.

A.

The Y-intercept,

b0,

implies when the annual revenue is zero, the franchise value is

b0,

in millions of dollars. The slope,

b1,

implies the revenue is equal to

b1,

in millions of dollars.

B.

The Y-intercept,

b0,

implies that if the annual revenue is zero, the franchise value is equal to

b0,

in millions of dollars. The slope,

b1,

implies that for each increase of 1 million dollars in annual revenue, the franchise value is expected to decrease by

b1,

in millions of dollars.

C.

The Y-intercept,

b0,

implies that if the annual revenue is zero, the franchise value is equal to the value of

b0,

in millions of dollars. The slope,

b1,

implies that the average franchise value is equal to

b1,

in millions of dollars.

D.

An interpretation of the Y-intercept,

b0,

is not meaningful because no sports franchise is going to have a revenue of zero. The slope,

b1,

implies that for each increase of 1 million dollars in annual revenue, the franchise value is expected to increase by

b1,

in millions of dollars.

Part 4

d. Predict the mean franchise value (in millions of dollars) of a sports team that generates $200 million of annual revenue.

Yi=

Part 5

e. What would you tell a group considering an investment in MLB baseball teams about the relationship between revenue and the value of a team?

A.

The value of the franchise can be expected to decrease as revenue increases.

B.

The value of the franchise can be expected to increase as revenue increases.

C.

The value of the franchise is not affected by changes in revenue.

D.

The value of the franchise can be expected to increase as revenue decreases.

Textbook