LIR 832 SPRING 2007 Problem Set 4

# LIR 832 SPRING 2007 Problem Set 4 - Problem Set 4...

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LIR 832: SPRING, 2007 (due the week following Spring Break) 1. Our firm produces lubricants for oil well drills and we are trying various means of improving our sales. We have tried additional advertising in trade journals; we have also tried investing more in training our sales force and created a sophisticated incentive scheme, we have also been known to provide the purchasing managers for certain large users with significant amounts of cash in small unmarked bills as an inducement to use our product. We have 130 sales offices around the world and, after a one year trial of our new approach to sales, we plan to estimate a regression of the form. Sales i = \$ 0 + \$ 1 *Advertising i + \$ 2 *Training i + \$ 3 *Bribes i + , i a. Is this a population or a sample regression. What is the difference between a population and a sample regression? b. Why do we have the , term in this regression? We go ahead and estimate the following regression on our 130 observations. The estimate of the regression line is (all variables measured in \$1,000s): Sales i = 1000 + 20*Advertising i + 30*Training i + 50*Bribes i r 2 = .35 r 2 32 = . c. Interpret each of the coefficients. What is the effect of a one unit change in the coefficient on advertising on sales? Of the coefficient on Training? Of the coefficient on Bribes? d. What is the prediction of sales for a location with \$1M in advertising, \$100,000 in training and \$750,000 in bribes? e. What is the meaning of the coefficient of determination and the adjusted coefficient of determination? f. Why don’t we have , i in this estimated equation? g.

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## This note was uploaded on 07/25/2008 for the course LIR 832 taught by Professor Belman during the Spring '07 term at Michigan State University.

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LIR 832 SPRING 2007 Problem Set 4 - Problem Set 4...

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