Question

The marketing director of Berman Corporation believes that sales of the company’s toasters (S) are related to the company’s own advertising expenditure (A), as well as the combined advertising expenditures of four biggest rival toaster manufacturing companies (R-A). Ms. A. Fu, the marketing director of the company, collects 30 weekly observations on S, A, and R-A to estimate the following multiple regression equation:

                                              S = a + b (A) + c (R-A)

Where S, A, and R-A are measured in dollars per week. Berman’s marketing director is comfortable using parameter estimates that are statistically significant at 5 percent level of significane.

The regression output from the computer is as follows:

Independent Variable: S         R-Square = 0.622              Observations: 30
Variable	Parameter Estimate	Standard Error	T-Ratio
Intercept	176,020.0	62,151.0	2.832
A	0.754	0.3460	2.179
R-A	-0.373	0.210	-1.776

1. What sign does the marketing director expect b, and c to have?

2. Interpret the estimated values of coefficients b, and c, based on the results obtained by the marketing director. (That is, what do 0.754 and -0.373 mean?)

3. Does Berman Company’s advertising expenditures have statistically significant effect on the sales of their toasters? Why or why not? (Hint: You need to use a t-test to answer this question).

4. Does the combined advertising expenditures of the Berman Company’s rivals have statistically significant effect on the sales of Berman Company’s toasters? Why or why not? (Hint: Again, you need to use a t-test to answer this question).

5. What fraction of the total variation in sales of Berman’s Corporation remains unexplained?

6. What is the expected level of sales (point estimate) each week when Berman Corporation spends $40,000 per week on advertising and the combined expenditures for the four rivals are $100,000 per week?

Answer 1