OLS

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1.Derive general Estimators for B0 and B1 that are optimal

2. Derive Estimates of the population parameters, using estimators

Estimated parameters have a "hat" "^".

predicted (fitted value): yi^ = B0^ + B1^ Xi

residual: ui^ = Yi - Yi^

Least squares principle: minimize sum of squared residuals -> produces optimal estimates

Graphical representation of fitted line:

Equation and interpretation of line:

OLS Example:

Goodness-of-Fit (OLS line)

SST = SSE + SSR

R-squared example: