Worse fit between estimated cost and actual observations is shown on regression line with

The correct answer is A. larger residual terms.

Residual terms are the differences between the actual values and the predicted values in a regression model. A larger residual term indicates that the model is not a good fit for the data.

Option B is incorrect because zero residual terms would indicate that the model is a perfect fit for the data, which is not possible.

Option C is incorrect because variable residual terms do not necessarily indicate a poor fit. In fact, some amount of variability in the residual terms is expected, as no model can perfectly predict all data points.

Option D is incorrect because smaller residual terms indicate a better fit, not a worse fit.