Answer all questions below. It is a whole question with multiple parts. Profit Forecasting: A company...

Answer all questions below. It is a whole question with multiple parts.

Profit Forecasting: A company is interested in predicting profit for a number of projects based on two explanatory variables: a measure of risk assigned at the outset of the project (x₁ = RISK) and the expenditure on research and development for the project (x₂ = RD). Data on the three variables PROFIT, RISK, and RD are available in the worksheet entitled RD5. PROFIT is measured in thousands of dollars and RD is measured in hundreds of dollars. Use the data to fit two separate regression models.

For the first model (Linear Model AKA First Order Model), regress PROFIT on the two explanatory variables RISK and RD. (Hint: "Regress PROFIT on x" implies that PROFIT is the y variable and x is the explanatory variable.)

PROFIT	RISK	RD
396	8.5	132.58
130	7.5	81.928
508	10	145.992
172	8	90.02
256	7	114.408
32	7.5	53.704
102	7	76.244
102	8	71.68
536	9.5	151.592
102	7.5	74.816
214	6	108.752
200	8.5	92.372
158	7	92.26
32	6.5	60.732
116	7.5	78.12
120	5.5	90
270	9	105.532
270	8	111.832

Use the Second Order Model to answer ALL of the questions below. Also, be sure to compute these values based on the UNROUNDED values in EXCEL.

e) Predict the profit for a project with a risk of 6.0 and a research and development expenditure of $5,500. (Enter your answers to two decimal places.)

f) Parts f) and h) require the use of partial differentiation. How quickly is the average profit increasing with respect to risk for a project with a risk of 6.0 and a research and development expenditure of $5,500? (Enter your answer to two decimal places.)

How quickly is the average profit increasing with respect to research and development expenditure for a project with a risk of 6.0 and a research and development expenditure of $5,500? (Enter your answer to two decimal places.)

g) Predict the profit for a project with a risk of 8.5 and a research and development expenditure of $9,500. (Enter your answers to two decimal places.)

h) How quickly is the average profit increasing with respect to risk for a project with a risk of 8.5 and a research and development expenditure of $9,500? (Enter your answer to two decimal places.)

How quickly is the average profit increasing with respect to research and development expenditure for a project with a risk of 8.5 and a research and development expenditure of $9,500? (Enter your answer to two decimal places.)

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Expert Solution

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orchestra answered 1 year ago

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