Chapter 8, Exerise Questions #32

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Return to Exercise 1.7, which gave data on advertising impressions retained and advertising expenditure for a sample of 21 firms. In Exercise 5.11 you were asked to plot these data and decide on an appropriate model about the relationship between impressions and advertising expenditure. Letting Y represent impressions retained and X the advertising expenditure, the following regressions were obtained:

a. Interpret both models.

b. Which is a better model? Why?

c. Which statistical test(s) would you use to choose between the two models?

d. Are there €œdiminishing returns€ to advertising expenditure, that is, after a certain level of advertising expenditure (the saturation level), does it not pay to advertise? Can you find out what that level of expenditure might be? Show the necessary calculations.