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