UKEQ1023 Quantitative Techniques II

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF ACCOUNTANCY AND MANAGEMENT
TUTORIAL 13 (Answer)

1. The district sales manager for a major automobile manufacturer is studying car
sales. Specifically, he would like to determine what factors affect the number of
cars sold at a dealership. To investigate, he randomly selects 12 dealers. From
these dealers he obtains the number of cars sold last month, the minutes of radio
advertising purchased last month, the number of full-time salespeople employed
in the dealership, and whether the dealer is located in the city. The regression
equation obtained from the survey is as follows:

Ŷ= 31.1328 + 2.1516adv + 5.0140sales + 5.6651city

(13.40) (0.8049) (0.9105) (6.332)

Where:
Ŷ = number of cars sold last month
adv = the minutes of radio advertising purchased last month
sales = the number of full-time salespeople employed in the dealership
city = 1 if the dealer is located in the city
0 if the dealer is not located in the city

a. How many cars would you expect to be sold by a dealership employing 20

salespeople, purchasing 15 minutes of advertising, and located in a city?

b. The results for the Analysis of Variance is given as follows:

Source ss df MS
Regression 5504.4 3 1834.8
Error 420.2 8 52.5
Total 5924.7 11

Conduct a global test 0f hypothesis to determine any whether any of the net
regression coefficients differ from zero. Let α = 0.05.

c. Conduct a test of hypothesis for the individual regression coefficient. Would

you consider deleting any of the independent variable? Let α = 0.05.

2. An economist is interested to see how consumption for an economy (in $ billions)

is influenced by gross domestic product ($ billions) and aggregate price
(consumer price index). The Microsoft Excel output of this regression is partially
reproduced below:

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UKEQ1023 Quantitative Techniques II

TABLE 2

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.991
R Square 0.982
Adjusted R Square 0.976
Standard Error 0.299
Observations 10

ANOVA
df SS MS F Signif F
Regression 2 33.4163 16.7082 186.325
0.0001
Residual 7 0.6277 0.0897
Total 9 34.0440

Coeff StdError t Stat p-value

Intercept – 0.0861 0.5674 – 0.152 0.8837
GDP 0.7654 0.0574 13.340 0.0001
Price – 0.0006 0.0028 – 0.219 0.8330

a. Referring to Table 2, when the economist used a simple linear regression

model with consumption as the dependent variable and GDP as the
independent variable, he obtained an r2 value of 0.971. What additional
percentage of the total variation of consumption has been explained by
including aggregate prices in the multiple regression?

b. Referring to Table 2, what is the p-value for the regression model as a whole
and what does it means? Let α = 0.05.
c. Referring to Table 2, which independent variables significantly affect the
consumption for an economy at 5% significance level?
d. Referring to Table 2, what is the predicted consumption level for an
economy with a GDP equal to $4 billion and an aggregate price index of
150?

3. One of the most common questions of prospective house buyers pertains to the
average cost of heating in dollars (Y). To provide its customers with information
on that matter, a large real estate firm used the following 4 variables to predict
heating costs: the daily minimum outside temperature in degrees of Fahrenheit (
X 1 ), the amount of insulation in inches ( X 2 ), the number of windows in the
house ( X 3 ), and the age of the furnace in years ( X 4 ). Given below are the Excel
outputs of two regression models.

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UKEQ1023 Quantitative Techniques II

Table 3
Model 1
Regression Statistics
R Square 0.8080
Adjusted R Square 0.7568
Observations 20

ANOVA
  df SS MS F Significance F
Regression 4 169503.4241 42375.86 15.7874 2.96869E-05
Residual 15 40262.3259 2684.155
Total 19 209765.75     

  Coefficients Standard Error t Stat p-value Lower 90.0% Upper 90.0%

Intercept 421.4277 77.8614 5.4125 7.2E-05 284.9327 557.9227
X1 (Temperature) -4.5098 0.8129 -5.5476 5.58E-05 -5.9349 -3.0847
X2 (Insulation) -14.9029 5.0508 -2.9505 0.0099 -23.7573 -6.0485
X3 (Windows) 0.2151 4.8675 0.0442 0.9653 -8.3181 8.7484
X4 (Furnace Age) 6.3780 4.1026 1.5546 0.1408 -0.8140 13.5702

a. Referring to Table 3, the estimated value of the partial regression parameter

1 in Model 1 means that?

b. Referring to Table 3, what can we say about Model 1?

c. Referring to Table 3, test whether the amount of insulation has a linear

effect on average heating costs at the  = 0.01 level of significance using
Model 1?

d. Referring to Table 3, what is the 90% confidence interval for the expected
change in average heating costs as a result of a 1 degree Fahrenheit change
in the daily minimum outside temperature using Model 1?

e. Referring to Table 3 and allowing for a 1% probability of committing a Type I

error, what is the decision and conclusion for the test
H 0 : 1   2   3   4  0 vs. H1 : At least one  j  0, j  1, 2, , 4 using Model 1?

4. The following multiple regression was conducted to attempt to predict the price of
yachts based on the independent variables shown.

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UKEQ1023 Quantitative Techniques II

(a) Conduct the appropriate test to determine whether the overall regression
model is statistically significant at the 0.05 level of significance using the
critical value method.

(b) Determine which, if any, of the four independent variables are statistically
significant in explaining the variation in the dependent variable. Make a
conclusion for your findings. Use a 0.05 level of significance and use the p-
value method.

5. The business problem facing a consumer products company is to measure the

effectiveness of different types of advertising media in the promotion of its
products. Specifically, the company is interested in the effectiveness of radio
advertising and newspaper advertising (including the cost of discount coupons).
During a one month test period, data were collected from a sample of 22 cities
with approximately equal populations. Each city is allocated a specific
expenditure level for radio advertising and for newspaper advertising. The sales of
the product (in thousands of dollars) and also the levels of media expenditure (in
thousands of dollars) during the test month are recorded, with the following
regression output shown below:

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UKEQ1023 Quantitative Techniques II

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.899
R Square 0.809
Adjusted R Square 0.789
Standard Error 158.904
Observations 22.000

ANOVA
  df SS MS F
Regression 2 2028032.690 1014016.345 40.158
Residual 19 479759.901 25250.521
Total 21 2507792.591    

  Coefficients Standard Error t Stat P-value

Intercept 156.430 126.758 1.234 0.232
Radio Advertising 13.081 1.759 7.435 0.000
Newspaper Advertising 16.795 2.963 5.668 0.000

(i) State the multiple regression equation.

(ii) Interpret the meaning of the slopes, and , in this problem.
(iii) Which type of advertising is more effective? Explain.
(iv) Construct a 95% confidence interval estimate of the population slope
between sales and radio advertising.
(v) At the 0.05 level of significance, determine whether each independent
variable makes a significant contribution to the regression model. On the
basis of these results, indicate the independent variables to include in this
model.
(vi) Explain any two assumptions of regression.

6. In determining the best companies to work for, a number of variables are

considered, including size, average annual pay, and turnover rate, etc. Moreover,
employee surveys are conducted in order to assess aspects of the organization’s
culture, such as trust and openness to change. In an attempt to determine what
affects turnover rate, a sample of 33 companies was randomly selected and data
collected on the average annual bonus and turnover rate (%). In addition, a
questionnaire was administered to the employees of each company to arrive at a
trust index (measured on a scale of 0 – 100). Below are the multiple regression
results.

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UKEQ1023 Quantitative Techniques II

(i). Write out the estimated regression equation.

(ii). Is the regression equation significant overall? Support your answer with
statistical evidence (use α = 0.05).

(iii). How much of the variability in Turnover Rate is explained by the regression
equation?

(iv). State the hypotheses for testing the regression coefficient of Average
Annual Bonus. Based on the results, what do you conclude? Support your
answer with statistical evidence (use α = 0.05).

(v). Predict the turnover rate for a company with a trust index score of 70 and an
average annual bonus of $6500.

(vi). Comment on whether the conditions for multiple regression are satisfied
based on the two plots shown below.