The difference between the actual revenue and the expected revenue is called the residual error, ε If we assume that the residual error (represented by ε) is a random varia...The difference between the actual revenue and the expected revenue is called the residual error, ε If we assume that the residual error (represented by ε) is a random variable that follows a normal distribution with μ=0 and σ a constant for all values of X, we have now created a statistical model called a simple linear regression model.
