Exxon Gas stations are developing a new faster pump design T

Exxon Gas stations are developing a new faster pump design. They have narrowed the development to two design options and are wondering how the pump design might affect daily gas sales (Sales). In a test in 31 stations, they try out the new design A in some stations (code = 2), the new design B in other stations (code = 3) and for control they have stations that have not had a change (code = 1). From prior research, Exxon knows that three other factors are crucial in predicting gas sales for any particular station: advertising amount in the market (Ad), relative pricing (relprice), and the number of competing stations and their density (compet). For any changes, Exxon wants to be 95% confident.

Regression results tables:

a) Assume a 1% profit margin and an investment of $1M for 100 stations for the change to a new design; will any change be profitable within the first year?

Store Sales Pump Design ad relprice compet 1 29100 2 254101 1.18 9.4 2 25620 31 26400 1.14 9.4 3 23850 1 25950 1.18 9.7 4 25200 1 27010 1.20 11.9 5 21420 2 27850 1.24 13.41 6 21300 3 25090 1.46 9.6 7 21900 1 25700 1.54 9.2 23700 1 26670 1.48 136 9 22080 2 28780 1.48 144 10 21960 3 28350 1.48 15.3 11 17580 1 28970 1.48 15.1 12 19440 11 27440 1.66 11.8 13 20940 2 25820 1.76 12.8 14 19110 3 26130 1.88 12.4 15 20310 11 25290 2.00 9.3 16 20460 11 25440 2.14 79 17 25020 26330 2.08 78 18 22380 3 28780 2.02 8.4 19 23940 11 30510 1.88 9.1 20 25860 11 32740 1.70 8.8 21 289 80 2 359 401 1.58 9.2 22 24480 31 37740 1.50 9.81 23 24600 11 38610 1.50 10.3 24 26460 1 39190 1.44 8.8 25 29880 2 40400 1.48 8.2 1 43030 1.42 7.1 27 24390 28 25980 1 43930 1.40 72 29 30450 2 45600 1.42 8.9 30 32130 3 45870 1.42 77 31 26850 11 47160 1.38 74

Solution

If the company adopts design 2 then it will definitely get a profit within the first year since for pump design 2 we have the coefficient and upper 95% more than pump design 3