Explain whether each scenario is a classification or regression problem, and ind

Question

Explain whether each scenario is a classification or regression problem, and indicate whether we are most interested in inference or prediction. Finally, provide n and p. (a) We collect a set of data on the top 500 firms in the US. For each firm we record profit, number of employees, industry and the CEO salary. We are interested in understanding which factors affect CEO salary. (b) We are considering launching a new product and wish to know whether it will be a success or a failure. We collect data on 20 similar products that were previously launched. For each product we have recorded whether it was a success or failure, price charged for the product, marketing budget, competition price, and ten other variables. (c) We are interested in predicting the % change in the USD/Euro exchange rate in relation to the weekly changes in the world stock markets. Hence we collect weekly data for all of 2012. For each week we record the % change in the USD/Euro, the % change in the US market, the % change in the British market, and the % change in the German market.

Explanation / Answer

2. (a) Here we are trying to identify the factors affecting the CEO's salary.

So it's a regression problem with CEO salary is the dependent variable.Independent variables are profit, number of employees and industry. Number of observations is 500.

Thus here, n = 500 and p = 3. (Ans).

(b) It is classification problem with two classes - success and failure.

Number of observations = 20.

Variables are price charged for the product, marketing budget, competition price and 10 other variables.

Thus here, n = 20 and p = 13. (Ans).

(c) It's a regression problem with change in USD/Euro exchange rate being the dependent variable.

Independent variables are %change in US market, %change in British market and %change in German market.

Total number of observations = number of weeks in 2012 = 52.

Thus here, n = 52 and p = 3. (Ans).

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