Stat 331 Applied Linear Models Assignment 2

Due on October 16 (Tuesday) in class 1. After tting the regression model yi = 0 + 1 xi1 + 2 xi2 +
i

0 = 10, 1 = 12, 2 = 15, to a set of n = 15 cases, we obtained the least squares estimates 2 and the mean square error M SE = s = 2. It is also known that 1 0.25 0.25 0 .5 0.25 (X X)1 = 0.25 0.25 0.25 2 1 ). (a) Estimate V ( (b) Test the hypothesis that H0 : 1 = 0 v.s. Ha : 1 = 0. 1 , 2 ). (c) Estimate Cov ( (d) Test the hypothesis that 1 = 2 at = 0.05 signicance level, using both the t-test statistic and condence interval. (e) The sum of squares of total, SST = 120. Construct the ANOVA table and test the over all signicance of the model. Obtain the percentage of variation in y that is explained by the model. 2. For a regression model with an intercept and several explanatory variables, let Y be the indicate the LSE of , and Y indicated the response vector, X be the design matrix, vector of tted values. Show that the following results are true in general: (a) X Y = X Y (b)
n i=1 yi

n i i=1 y

(c) Y r = 0 (d) The coefcient of determination R2 is equal to the square of the sample correlation between the response vector, Y, and the vector of tted values, Y. (This is also why R2 is also called multiple correlation coefcient) Note that the sample correlation between Y and Y is dened as r= ( (yi y )(y i y ) (yi y )2 ) (y i y )2

3. A consumer-product marketing experiment involved different advertising and promotion strategies in eight sales regions. TV advertising, newspaper advertising, and retailer incentive (absent or present) were systematically varied. TV advertising (x1 ) was either reduced by 10% compared with the previous quarter, kept the same, or increased by 10%. These advertising levels are coded as 1, 0, or 1 below. Similar changes were made to the level of newspaper advertising (x2 ), again coded as 1, 0, or 1. The changes in market share (percentage points) relative to the previous quarter are given below.

TV advertising -1 0 0 1 -1 0 0 1

Newspaper advertising 0 -1 1 0 0 -1 1 0

Retailer incentive Absent Absent Absent Absent Present Present Present Present

Change in market share 1.2 1.5 2.2 2.3 1.9 1.4 2.8 2.3

Assume that market share change is additive in terms for an intercept, for linear TV advertising, for linear newspaper newspaper advertising, and for the absence or presence of the retailer incentive. (a) Set up another variable, x3 , which takes the value 1 if the retailer incentive is absent and 1 if it is present. Write down a linear model corresponding to the above assumptions. (b) Write down the X matrix and the Y vector. and hence compute the least squares . estimates, (c) Compute a suitable ANOVA table and hence R2 . (d) Assume that the errors in your model are independent N (0, 2 ) random variables. Carry out a single test of the hypothesis that TV advertising, newspaper advertising, and retailer incentive have no effect. Comment. (e) Carry out a t-test and produce a 95% condence interval for each slope parameter. Comment. (f) Company-wide, one unit of TV advertising on the above coded scale would cost $3, 250, 000. The Vice President for Marketing wants to know how many market share points we get per million dollars spent. Give a 95% condence interval for this quantity. Explain the interval in words. (g) Company-wide, one unit of newspaper advertising would cost $2, 600, 000, and the retailer incentive would cost $900, 000. Repeat part (f) for newspaper advertising and for the retailer incentive. (h) Based on your analysis, the Vice President for Marketing is considering the following company-wide strategy: keep TV advertising at level 0 on the coded scale, increase newspaper advertising by 2 unit, and do not used the retailer incentive. Give a 95% condence interval for the mean value of market-share change and a 95% condence interval for the market-share change in a single region. Discuss possible situations when each interval might be relevant. Note: If you used R for the assignment, your R code and output must be submitted.