ACCA MA · Chapter 2 · Question 5 of 12
The correlation coefficient between monthly output and total production cost has been calculated as 0.8. What proportion of the variation in total production cost is explained by variation in output?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) 64%
Explanation
The proportion explained is the coefficient of determination, r squared. 0.8 x 0.8 = 0.64, so 64% of the variation in cost is explained by variation in output. The remaining 36% is due to other factors.
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