The following data represent a companys yearly sales volume

The following data represent a company\'s yearly sales volume and its advertising expenditure over a period of 8 years.

(Y)                                                               (X)

Sales in                                                        Advertising

Millions of Dollars                                          in ($10,000)

15                                                                   32

16                                                                   33

18                                                                   35

17                                                                   34

16                                                                   36

19                                                                   37

19                                                                   39

24                                                                   42

1. Develop a scatter diagram of sales versus advertising and explain what it shows regarding the relationship between sales and advertising.

2. Use the method of least squares to compute an estimated regression line between sales and advertising.

3. If the company\'s advertising expenditure is $400,000, what are the predicted sales? Give the answer in dollars.

4. What does the slope of the estimated regression line indicate?

Solution

Scatter plot is as follows:

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Plug in x = 400000

y = 16.714+428400

= 445114

4) Slope of the estimated regression line gives rate of change of y for 1 unit change in x.

For example, here when ad expenditure increases by 1 Unit (10000) then sales increases by 1.071 units.