The personnel department of the ACME Textile Co. administers an aptitude test to all prospective assembly line employees. The average number of garments per hour that an employee can produce is approximately proportional to the score received on the aptitude test. In particular, the relationship is represented by Y; = x;/3 + s; where y; = average number of garments per hour produced by employee i, x; = score of employee i on aptitude test, /3 = proportionality factor, e; = error term,representing the deviation between actual average number of garments per hour produced by employee i and the production level implied by x;/3.
You may assume that the s/s are independent, and you may also assume that Es; = 0 and Es; = a2, V i.Suppose you had the outcome, {YI, Y2, ..., Ynl, of a random sample of average production rates for n employees, to gether with their associated scores, {x1,x2, ...,xn}, on the aptitude test.
a. Should the random sample {Y1, • • • , Ynl be inter preted as a random sample from some population distribution, or should it be interpreted as a random sample generated from a composite experiment? (Note: Itcannot be expected that the aptitude scores will all be the same.)
b. Derive the functional form of the least-squares estimator of the proportionality factor, /3. Is the Use the estimator you derived in (b) to generate an estimate of /3.