SAMPLE ONLY

Multiple Regression Analysis

The table presented gives a hypothetical quantity of sales for a certain commodity (Y)
of a particular firm given its price (P) and the value of its advertising expenditures (ADS) for
the period of 1997 to 2006 ( currency is denominated in dollars).
Taken from ECO556 Manual Table 4.3, page 141
Year Sales(million) Advertising (million) Price(million)
Y ADS P
1997 44 10 1
1998 58 13 1.2
1999 48 11 2
2000 46 12 1.8
2001 42 11 2.1
2002 60 15 0.8
2003 52 12 1.4
2004 54 13 2
2005 56 14 1.5
2006 40 9 1

Regression Model
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.974413685
R Square 0.94948203
Adjusted R Square 0.935048324
Standard Error 1.781969495
Observations 10

ANOVA
df SS MS F Significance F
Regression 2 417.772093 208.8860465 65.78227663 2.89775E-05
Residual 7 22.22790698 3.175415282
Total 9 440

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 35.95116279 8.636493967 4.162703399 0.004227464 15.52909971 56.37322587
ADS 2.109302326 0.504749137 4.178912198 0.004142861 0.915760275 3.302844376
P -3.88372093 1.052474705 -3.690084817 0.007755735 -6.372428143 -1.395013718
Interpretation:
Regression Equation
Coefficients
Intercept 35.95116279
ADS 2.109302326
P -3.88372093

Y=35.95+2.11ADS-3.88 P
The estimated function show positive value (+2.11), so it conforms to the expected
economic theory. If we spend $1 on Advertisement (ADS) then the Sales(Y) will increase by
2.11 units and the sales of the commodity per year declines by -3.88 units for each 1$
increase in the price. As the firm increase the price of the commodity there will be a decrease
of sales of the commodity. On the other hand, as the firm spent more on their advertisement
could have a positive increase of sales of the firms commodity at a certain point of time.
Test of overall significance
Regression Statistics
Multiple R 0.974413685
R Square 0.94948203
Adjusted R Square 0.935048324
Standard Error 1.781969495
Observations 10

Based on the regression model, we can now test for the overall explanatory power of
the entire regression. This is given by the coefficient of determination (R2):
If the value of R2 ranges from 0 to 1
R2 = 0
It shows that none of the independent variables explain the changes in the dependent
variable.
R2 = 1
It shows that all the changes in the dependent variable is explained by the variation in
the independent variables.
Based on the regression model the value of R2 and Adjusted R2 are:
R2 = 0.949482029598309
It shows that 94% of the changes in the dependent variables is explained by the
variation in the independent variables, when no adjustment is made for the degree of
freedom. The other remaining percent cannot be explained by the regression analysis.
This may be due to the omission of some important independent variables.
Adjusted R2 = 0.935048323769254
It shows that 93% of the changes in the dependent variables is explained by the
variation in the independent variables, when adjustment is made. The other remaining
percent cannot be explained by the regression analysis.
ANOVA

df SS MS F Significance F
Regression 2 417.772093 208.8860465 65.78227663 2.89775E-05
Residual 7 22.22790698 3.175415282
Total 9 440
F Stat:
The value of F statics is 65.78 which exceeds the critical value of F is 4.74. Therefor
reject the null hypothesis and accept the alternative. At 5% significance level we can
conclude that there is statistically relationship that exist between dependent and independent
variable.
Test of Significance of Parameter Estimates
t Stat P-value
4.162703399 0.004227464
4.178912198 0.004142861
-3.690084817 0.007755735

P Value
At 5% significance level, the P-value of both explanatory variable is less than the
given significance level. Therefor reject the null hypothesis and accept the alternatives. This
mean that there is a correlation exist between the explanatory variables (Price and
Advertisement) and dependent variables (Sales). We can conclude that the price and
advertisement has an impact to the sales volume of the commodity.
Model Specification
Since both of the price of the commodity and advertisement impact to sales volume
we can express that the demand function is Y=35.95+2.11ADS-3.88 P. Based on the model
the regression gives standard error value of 1.78 of the dependent variable, we say that there
is better fit of the line to the observation due to the small value of the standard error.
By using the specified function and the standard error of Y, we can find or obtain the
points estimates or forecast values of Y if the value of the explanatory variables are known
at the approximate 95% confidence level.