Homework 2

Answer No. 1:

(a)

From the coefficient value of "a" that is constant in regression analysis, it can be said that the value is in positive, indicating the positive association of dependent variable with the independent variables. Moreover, for the coefficient "b", it can be noted that the coefficient value is positive that is 0.855, which indicates that there is positive association of the dependent variable that is sales of the company with the independent variable that is advertising expenditure of the company. Besides it, the coefficient value of "c" presents that the value is in negative, showing negative relationship of sales of the company with the advertising expenditures of the rivals; however, it is also important to note that the significance level is under 0.05 which is greater in the case of advertising expenditures of the rivals.

(b)

It can be observed that the advertising expenditure of Vanguard is statistically significant as the level of significance is under 0.05 that is 0.012. For that reason, it can be said that there is positive relation of advertising expenditure of Vanguard with the sales of Bright Side detergent.

(c)

It can be observed that the advertising expenditure of three largest rivals is not statistically significant, because the significance level is greater than 0.05 that is 0.09. Keeping this in view, it can be noted that there is no relation of advertising expenditure of the rivals with the sales of the company.

(d)

The standard error of the model is 63821, which shows the total variation in sales of company is remained unexplained. In relation to this, the marketing director should increase the sample size of the study so that the variation the data for the variables can be decreased; thus, it will increase the explanatory power of the sales equation. Moreover, the marketing director can also add some more variables like price of the product.

(e)

S

=

a

+

(b)

(A)

+

(c)

(R)

S

=

175086

+

(0.855)

(30000)

+

(-0.284)

(200000)

S

=

175086

+

25650

+

-56800

S

=

143936

Answer No. 2:

(a)

It can be said that Bridget is not making the utility maximizing choice. The basis of this statement is that the marginal utility per unit of money spent is equal for each good at utility maximizing combination.

Per unit marginal utility of cheese

=

marginal utility of cheese

=

40

=

4

per unit cheese

10

Per unit marginal utility of wine

=

marginal utility of wine

=

50

=

5

per unit wine

10

Thus, it can be said that for wine and cheese, utility maximizing combination for the two are not equal.

(b)

It can be said that the consumption of cheese should be increased, as it ...