Question

Akiko Hamaguchi, the manager at a small sushi restaurant in Phoenix, Arizona, is concerned that the weak economic environment has hampered foot traffic in her area, thus causing a dramatic decline in sales. Her cousin in San Francisco, Hiroshi Sato, owns a similar restaurant, but he has seemed to prosper during these rough economic times. Hiroshi agrees that higher unemployment rates have likely forced some customers to dine out less frequently, but he maintains an aggressive marketing campaign to thwart this apparent trend. For instance, he advertises in local papers with valuable two-for-one coupons and promotes early-bird specials over the airwaves. Despite the fact that advertising increases overall costs, he believes that this campaign has positively affected sales at his restaurant. In order to support his claim, Hiroshi provides his restaurant’s monthly sales (in $1,000s) and advertising costs (in $), as well as the monthly unemployment rate (in %) from San Francisco County. See the attached Excel file for the necessary data.

In a report (WRITTEN PARAGRAPH), use the sample information to

1. Estimate a simple regression model, Sales = β₀ + β₁Advertising + ε, as well as a multiple regression model, Sales = β₀ + β₁Advertising + β₂Unemployment + ε
2. Show that the multiple regression model is more appropriate for making predictions.
3. Make predictions for sales with an unemployment rate of 6% and advertising costs of $400 and $600.

Month	Year	Sales	AdsCost	Unemp
January	2008	27	550	4.6
February	2008	24.2	425	4.3
March	2008	25.6	450	4.6
April	2008	28.5	625	4.3
May	2008	30.8	650	4.8
June	2008	31.5	675	5.2
July	2008	34.9	700	5.6
August	2008	32.5	650	5.8
September	2008	30.4	550	5.5
October	2008	31	525	5.8
November	2008	28.5	500	6
December	2008	29	600	6.5
January	2009	26.2	575	8
February	2009	25.4	625	8.4
March	2009	27.8	650	9.1
April	2009	26.5	600	8.9
May	2009	27.4	550	9.1

Answer 1