Question

The Owner of WOW Furniture studio wants to know the relationship between sales and the amount he spent on digital advertising. The sales information for the last four months is repeated below:

Month	Advertising Expense (Millions)	Sales Expense (millions)
July	2	7
August	1	3
September	3	8
October	4	10

A) Determine the regression equation Answer:

b =

a =

B) Interpret the values ​​of a and b (fill the blank)
The slope is _____ This indicates that _________ of a million in advertising will generate a ____________ of 2.2 million in sales. The intersection is _______, if there were no advertising expenses, sales would be __________ million.

C) Estimate sales when they spend 3 million on digital advertising

R:

Answer 1

It shall be noted that as per the economic theory, it is the advertising expense (Millions) that would influence the Sales expense (Millions)

The dependent variable is Sales expense (Millions)

The independent variable is Advertising expense (Millions)

'A)

The regression equation is:

Predicted Sales Expense (Millions) = a + b*Advertising Expense (Millions)

Month	Advertising Expense (Millions)	Sales Expense (millions)		SUMMARY OUTPUT
July	2	7
August	1	3		Regression Statistics
September	3	8		Multiple R	0.964763821
October	4	10		R Square	0.930769231
				Adjusted R Square	0.896153846
				Standard Error	0.948683298
				Observations	4
				ANOVA
					df	SS	MS	F	Significance F
				Regression	1	24.2	24.2	26.88888889	0.035236179
				Residual	2	1.8	0.9
				Total	3	26
					Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
				Intercept	1.5	1.161895004	1.290994449	0.325800138	-3.49923071	6.49923071	-3.49923071	6.49923071
				Advertising Expense (Millions)	2.2	0.424264069	5.185449729	0.035236179	0.374539047	4.025460953	0.374539047	4.025460953

The regression equation is:

Predicted Sales Expense (Millions) = 1.5 + 2.2*Advertising Expense (Millions)

Hence,

b = 2.2

a = 1.5

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B)

The slope is 2.2

This indicates that the increase of a million in advertising will generate an increase of 2.2 million in sales.

The intersection is 1.5 million if there were no advertising expenses.

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C)

Advertising expense (Millions) = 3 million

The Estimated sales = 1.5 + 2.2*Advertising Expense (Millions)

= 1.5 + 2.2*3

= 8.1 million