Question

A shoe store developed the following estimated regression equation relating sales to inventory investment and advertising expenditures. where
^y = 25 + 10x1 + 8x2
x1 = inventory investment ($1000s)
x2 = advertising expenditures ($1000s)
y = sales ($1000s)
a. Predict the sales resulting from a $15,000 investment in inventory and an advertising budget of $10,000.
b. Interpret b1 and b2 in this estimated regression equation.

Answer 1

Answer: See explanation

Step-by-step explanation:

a. Predict the sales resulting from a $15,000 investment in inventory and an advertising budget of $10,000.

To solve this, in the regression equation, we have to replace x1 with 15 and then replace x2 with 10. This will be:

y = 25 + 10x1 + 8x2.

y = 25 + 10(15) + 8(10)

y = 25 + 150 + 80

y = 255

Therefore, the predicted sales is 255.

b. Interpret b1 and b2 in this estimated regression equation.

A change in b1 which is the inventory investment will bring about a change of 10 units in the sales as long as other values are constant.

A change in b2 which is the Advertising expenditure will bring about a change of 8 units in the sales as long as other values are constant.