Example Questions:

Q-1: Management proposed the following regression model to predict sales at a fast-food outlet.
𝑦 = 𝛽0 + 𝛽1 𝑥1 + 𝛽2 𝑥2 + 𝛽3 𝑥3 + 𝜀
Where: 𝑥1 = number of competitors within one mile
𝑥2 = Population (in thousands) within one mile
𝑥3 = 1 if drive-up window present and 0 if drive-up window does not present.
y = sales (in $1000).
The following estimated model was obtained using survey data of 20 outlets:
𝑦̂ = 10.1 − 4.2𝑥1 + 6.8𝑥2 + 15.3𝑥3 , R2 = 0.697
SE (2.35) (1.89) (3.24) (6.24)
a. Interpret the estimated coefficients of number of competitors (x1) and drive-up window (x3)
variables.
b. Predict sales for a store with two competitors, a population of 8000 within one mile, and no
drive-up window.
c. Predict sales for a store with one competitor, a population of 3000 within one mile, and a drive-
up window.
d. Test at the 5% level of significance that adding more competitors significantly reduce sales i.e.
test a negative relationship between the variables?
e. Interpret R2 of the model in practical terms.
f. Does presence of drive-up window significantly increase sales? Test at 5% level.

Q-2: A fire safety inspector wants to relate the amount of fire damage (y, in thousands of dollars)
in major residential fires to the distance (x, in miles) between the residence and the nearest fire
station. The study is to be conducted in a large suburb of a major city; a sample of 15 recent fires
in this suburb is selected.
DISTANCE x 3.4 1.8 4.6 2.3 3.1 5.5 0.7 3 2.6 4.3 2.1 1.1 6.1 4.8 3.8
DAMAGE y 26.2 17.8 31.3 23.1 27.5 36 14.1 22.3 19.6 31.3 24 17.3 43.2 36.4 26.1
a). Draw a scatter diagram and comment on direction, strength and linearity of the relationship.
b). The estimate regression equation is reported below along with coefficients standard errors.
𝑦̂ = 10.277 + 4.919 𝑥, R2 = 0.923
SE (1.42) (0.397)
Interpret the estimated intercept and slope.
c).Interpret the estimated intercept and slope in practical terms.
d).Predict the fire damage for a house which is 5 miles away from the nearest fire station.
e). Test the hypothesis that there is a positive relationship between distance and fire damage.
f). Interpret the R square of the model in practical terms.
g) What variables are included in the error term e of the model, give two examples in this context.