Q3. A fashion boutique in Williamstown, MA hired a statistician who developed th
ID: 3063692 • Letter: Q
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Q3. A fashion boutique in Williamstown, MA hired a statistician who developed the following estimated regression relating investment spending and advertisement spending to annual sales All variables are expressed in $1,000. PLEASE EXPLAIN AND SHOW ALL YOUR WORK TO RECEIVE FULL CREDIT Sales 75+15 investment spending+25 advertisement spending Predict sales resulting from a S 10,000 investment spending and $15,000 advertisement a. spending. Provide the accurate interpretation of the estimated coefficients associated with imvestment spending and advertisement spending, respectively b. b.1 Interpretation of the estimated coefficient associated with investment spending b.2. Interpretation of the estimated coefficient associated with advertisement spending Suppose that the CEO of this fashion boutique asks you to guide her decision to increase sales. What will be your advice based on the estimate results of this model? Please motivate c. Sales 75+ 15 investment spending+ 25 advertisement spendingExplanation / Answer
Sales = 75 + 15 * Investment spending + 25 * advertisement spending.
a. Investment spending = 10; Advertisement spending = 15
Sales = 75 + 15*10 + 25*15 = 600
Sales would be $ 600,000
b.1 The coefficient for investment spending is 15. This means that for every unit change (in $ 1000) in the investment spending, the sales would increase by 15 units (in $1000)
So, for $ 1,000 increase in investment spending, the sales would increase by $ 15,000. For every $ 1,000 decrease in investment spending, the sales would decrease by $ 15,000.
b.2
The coefficient for advertisement spending is 25. This means that for every unit change (in $ 1000) in the iadvertisement spending, the sales would increase by 25 units (in $1000)
So, for $ 1,000 increase in advertisement spending, the sales would increase by $ 25,000. For every $ 1,000 decrease in advertisement spending, the sales would decrease by $ 25,000.
c. The CEO should focus more on increasing advertisement spending as this has a larger impact on increasing sales as compared to investment spending.
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