Question 2 The following equation is estimated for 32 firms in the chemical indu

Question

Question 2 The following equation is estimated for 32 firms in the chemical industry: 0.472+ 0.321 In (sales) + 0.050prom arg (1.369) (0.216) rd intens (0.046) Assume that MLR.1 through MLR.6 hold. Where R&D; intensity (rdintens) is expenditures on research and development as a percentage of sales, profit margin (profmarg) is profits as a percentage of sales, and sales (sales) are measured in millions of dollars. The numbers in parentheses are standard errors. a) Test whether R&D; intensity increases with (log) sales. Use a 5% significance level. b) Carefully interpret the coefficient on profit margin. Is the coefficient economically significant? Is it statistically significant? c) Can you reject the hypothesis that the coefficient on profmarg is equal to 0.15 with a 5% significance level?

Explanation / Answer

(a) Here coefficient for ln(sales) = 0.321

standard error se = 0.216

Test statistic t = 0.321/0.216 = 1.486

so for dF = 32-2 = 30

tcr = 2.0423

so here t < tcr  so we cannot reject the null hypothesis and can conclude that R& D intensity doesn't significantly increase with sales.

(b) The interpretation of coefficient is that If profit margin increase by 100 units then there will be 5 units increse in R & D intesity. The coefficient is not economically significant as it is only 5% increase.

Statistically.

t = 0.050/0.046 = 1.09

so that t < tcr so this variable is also not statistically significant.

(c) Here H0 : B2 = 0.15

Ha : B2 0.15

Test staticstic

t = (0.050 - 0.15)/ 0.046 = -2.17

tcr = 2.0423

so we shall reject the null hypothesis and can claim that coefficient of profit margin is not equal to0.15.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.