SELF TEST: MULTIPLE REGRESSION

PART 1

The owner of Showtime Movie Theaters, Inc., would like to predict weekly gross revenue as a function of
advertising expenditures. historical data for a sample of eight weeks follow:

a. Develop an estimated regression equation with the amount of television advertising as the independent
variable.
b. Develop an estimated regression equation with both television advertising and news- paper advertising as
the independent variables.
c. Is the estimated regression equation coefficient for television advertising expenditures the same in part (a)
and in part (b)? Interpret the coefficient in each case.
d. Predict weekly gross revenue for a week when $3500 is spent on television advertising and $1800 is spent
on newspaper advertising.

PART 2 (Coefficient of Determination)

The owner of Showtime Movie Theaters, Inc., used multiple regression analysis to predict gross revenue ( y) as a
function of television advertising (x1) and newspaper advertising (x2). The estimated regression equation was

The computer solution provided SST = 25.5 and SSR = 23.435.

a. Compute and interpret R2 and R2a.

b. When television advertising was the only independent variable, R2 = 0.653 and R2a = 0.595. Do you prefer
the multiple regression results? Explain.
PART 3 (Testing for Significance)

1. Use a = .01 to test the hypotheses

H0: ß1 = ß2 = 0
Ha: ß1 and/or ß2 is not equal to zero f

or the model y = ß0 + ß1x1 + ß2x2 + e, where

x1 = television advertising ($1000s)

x2 = newspaper advertising ($1000s)

2. Use a = 0.05 to test the significance of ß1. Should x1 be dropped from the model?

3. Use a = 0.05 to test the significance of ß2. Should x2 be dropped from the model?