Use the following to answer the question on the basis of the following regressio
ID: 1110558 • Letter: U
Question
Use the following to answer the question on the basis of the following regression equation. (Standard errors in parentheses, n = 200.)
Q = -6,500 - 100PA + 50PB + .3I + .2A; R2 =.12
(2,500) (50) (30) (.1) (.08)
where Q is the quantity demanded of good A; PA = $10, price of good A; PB = $8, price of good B; I = $12,000, per capita income; and A = $20,000, monthly advertising expenditures.
How well does this regression equation explain the variation in the quantity demanded (Q)?
88% of the variation in Q is explained; this is cause for concern
12% of the variation in Q is explained; this is generally acceptable
12% of the variation in Q is explained; this is cause for concern
88% of the variation in Q is explained; this is generally acceptable
88% of the variation in Q is explained; this is cause for concern
12% of the variation in Q is explained; this is generally acceptable
12% of the variation in Q is explained; this is cause for concern
88% of the variation in Q is explained; this is generally acceptable
Explanation / Answer
R square basically tells us the change in the value of the dependent variable that is quantity demanded here for change in all the other variables combined.
so answer is C
as 12% of the variation is explained and it is a cause of concern because there is very extremely dependency of quantity demanded on all the other variables combined, maybe there are some extra non relevant variables included or tyhere is presence of multicolinearity.
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