Question

You work for Mut the Custard, a frozen custard company. You’ve collected data on monthly sales (S, number of regular-sized frozen custards per month) the price of your regular-sized frozen custard (P, in dollars), and the population size in the different cities in which your company operates (N, number of people; you currently only have one establishment in each city). You estimate the following regression model: S = a + bP + cN. In your regressions, you usually look for a 10%-or-better level of confidence.

a.   What signs do you expect for a, b, and c?

b.   Your regression yields the following results:

Adjusted R Square	0.777
Independent Variables	Coefficients	Standard Error	t Stat	P-value
Intercept	7056	1040	6.738	0.00106
P	-649.06	126.90	-5.115	0.00372
N	0.0028	0.0034	0.812	0.45380

      Interpret what these coefficients mean.

c.   Does price have a statistically significant effect on sales?

d.   Does population have a statistically significant effect on sales?

e.   What portion of the total variation in sales remains unexplained?

f.    Mut the Custard is considering selling in a new city, where the population is 85,000, and setting its regular-sized frozen custard price at $7.99. What level of monthly sales would you expect in this new city (rounded to the nearest unit)?

Answer 1