Tina Reese, financial manager at the local Players Theater, is checking to see if there is any relationship between newspaper advertising and sales revenues at the theater. She obtains the following data for the past 10 months:

She estimates the following regression equation:
Monthly revenues = $ 33,818 + ($ 10.765 * Advertising costs)

1. Plot the relationship between advertising costs and revenues.
2. Draw the regression line and evaluate it using the criteria of economic plausibility, goodness of fit, and slope of the regression line.
3. Use the high– low method to compute the function, relating advertising costs and revenues.
4. Using
(a) The regression equation and
(b) The high– low equation, what is the increase in revenues for each $ 1,000 spent on advertising within the relevant range? Which method should Tina use to predict the effect of advertising costs on revenues? Explain briefly.
5. What other factors should Tina consider before using the method you chose in requirement4?

  • CreatedJanuary 15, 2015
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