Chapter 16.1, Problem 7E

In 2011, home prices and mortgage rates fell so far that in a number of cities the monthly cost of owning a home was less expensive than renting. The following data show the average asking rent and the monthly mortgage on the median-priced home (including taxes and insurance) for 10 cities where the average monthly mortgage payment was less than the average asking rent (The Wall Street Journal, November 26-27, 2011).

City	Rent ($)	Mortgage ($)
Atlanta	840	539
Chicago	1062	1002
Detroit	823	626
Jacksonville, Fla.	779	711
Las Vegas	796	655
Miami	1071	977
Minneapolis	953	776
Orlando, Fla.	851	695
Phoenix	762	651
St. Louis	723	654

1. a. Develop a scatter diagram for these data, treating the average asking rent as the independent variable. Does a simple linear regression model appear to be appropriate?
2. b. Use a simple linear regression model to develop an estimated regression equation to predict the monthly mortgage on the median-priced home given the average asking rent. Construct a standardized residual plot. Based upon the standardized residual plot, does a simple linear regression model appear to be appropriate?
3. c. Using a second-order model, develop an estimated regression equation to predict the monthly mortgage on the median-priced home given the average asking rent.
4. d. Do you prefer the estimated regression equation developed in part (a) or part (c)? Explain.