Your boss is about to start production of her newest boxoffi

Your boss is about to start production of her newest box-office smash-to-be, Invasion of the Economists, Part II, when she calls you in and asks you to build a model of the gross receipts of all the movies produced in the last five years. Your regression is (standard errors are in parentheses):

Gi=781 + 14.4*Ti - 992*Fi + 1770*Ji + 3027*Si+…+Ei

(60.0)     (5.0)         (800)           (300)          (1000)

                                                            N=25

Where G_i = the final gross receipts of the i^th motion picture (in thousands of dollars)

            T_i = the number of screens (theaters) on which the i^th film was shown in its first week

            F_i = the dummy variable equal to 1 if the star of the film is a female or 0 otherwise

            J_i = a dummy equal to 1 if the movies was release in June/July and 0 otherwise

            S_i = a dummy variable equal to 1 if the star of the film is a superstar (like Tom Cruise) and 0 otherwise.

Answer the following questions (show your work):

a. Discuss the expected signs of the coefficients.

b. Calculate appropriate t-scores.

c. Interpret coefficients and discuss statistical significance

d. Tom Hanks will appear in this movie if your boss pays $4 million for this role. If your results are trustworthy, would you recommend your boss to hire Tom Hanks or John Smith (a nobody) for $500,000

e. Your boss wants to keep costs low, and it would cost $1.2 million to release a movie on an additional 200 screens. Assuming your estimates are trustworthy, should your boss spring for the extra screens?

f. The movie is scheduled for release in September, and it would cost $1 million to speed up production enough to allow a July release without hurting quality. Assuming your estimates are trustworthy, is it worth the rush?

Solution