In: Economics
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:
A) b= 2.2
a = 1.5
B) first blank - 2.2
( Slope is 2.2)
Second blank - Increase or rise or addition
( Slope coefficient shows the change in dependent variable when independent variable changes by one unit. )
Third blank - Increase or rise or addition
( Slope coefficient is positive. So the relationship between advertising expense and sales is positive. Therefore an increase in advertising expense by one million would lead to an increase in sales and that Increase in sales is 2.2 miliion which is given by the slope coefficient.)
Fourth blank - 1.5
( The Value of intercept is 1.5)
Fifth blank - 1 . 5
( Value of intercept is 1.5. intercept shows the Value of Y when X =0. Thus, there is sale of 1.5 miliion when there were no advertising costs.)
C) Y= a+bX
a= 1.5
b =2 .2
X = 3
Y = 1 .5 + 2.2(3)
= 1.5+ 6.6
=8.1
Sales are 8.1 million when they spend 3 million on advertising.