Bahnemann Ch 5 One Stop
Hi! Do we need to be able to calculation the equation of the Pareto line and then the Pareto params on the exam? I tried to calculate it but didn't get the values in the example - in y = mx + b I calculated m as (2500-1196)/(5000-100) and got .2662 (instead of the .2535), and same for the y-intercept - solving for e0 via .2535 = (1196 - e0)/(100 - 0) I got 1170 as b. Thanks!
Comments
Hi,
Yes, you definitely need to be able to calculate the Pareto parameters in this type of problem.
The issue you're having is with the line of best fit. In your calculation you are assuming the line of best fit goes through the points (100, 1196) and (5000, 2500) but when we fit a least squares estimate this isn't guaranteed.
There's a chance the CAS would give you the equation of the line of best fit as we do in the one-stop PDF example (y = 0.2535x + 1222.7). In which case you can proceed as we do in the PDF to get the Pareto parameters.
If they didn't give you the equation then you would use the LINEST() Excel function to get the m and b parameters of the line of best fit and then proceed as in the PDF.
Let me know if you need more help please.
Ahh okay - that all makes sense. Thanks!!