Question

The sales manager of a company wishes to evaluate the performance of the company's sales representatives. Each sales representative is responsible for one sales territory, and the manager decides to use yearly sales (y) in the representative's territory as a measure of performance. He performed two regression studies.
In one study he regresses y versus percentage market share of the company in the territory (x1), and in the second study, he regresses y versus dollar advertising expenditure in the territory (x2).
He states in a meeting that advertising expenditure is more highly correlated with annual sales since the slope of that model (y vs x2) is larger than the slope of the other model (y vs x1). How do you respond to his claim?

Answer 1

Answer:

Given that :  

Y: Yearly Sales

X1: Market share of the company

X2: Advertising Expenditures

Using Multiple regression model to data,

If slope of the model1 is greater than another slope of model 2 then the Model 2 's independent variables are highly correlated than Model 1.

In this case similar senerio happens, Hence the Annual sales and advertising expenditure is highly correlated than other model.