A company wants to estimate how effective different types of

A company wants to estimate how effective different types of advertising are for promoting its products. Specifically, the company is interested in estimating the effectiveness of radio advertising and newspaper advertising. A sample of 50 cities is selected for the study during a test period of one month. The populations of the selected cities are approximately the same. Each city is allocated a specific expenditure level for radio advertising and for newspaper advertising. Sales of the product (in thousands of dollars) and the levels of expenditure (in thousands of dollars) on both types of advertising are recorded during the test month. The collected data are given in the TABLE below

a.  Specify a suitable multiple regression equation for predicting sales.

b.  Use Excel to estimate the coefficients of the regression equation.

c.  Are the estimated slope coefficients statistically significant? Explain.

d.  Interpret the estimated slope coefficients.

e.  Predict the sales for a city in which radio advertising is $60,000 and newspaper advertising is $60,000.

Solution

a. Sales = B0 + B1*Radio + B2*Newspaper

b. Below is the estimated regression:

c. Yes the estimated coefficients are statistically significant at 5% level of significance as the p-value is less than the 0.05.

d. A unit increases in Radio advertising results in increase in sales by 8.46 units.

Likewise, a unit increases in Newspaper advertising results in increase in sales by 20.69 units.

e. Predicted Sales = 167.52 + 8.46*Radio + 20.69*Newspaper

when radio advertising is $60,000 and newspaper advertising is $60,000, predicted sales = 167.52 + 8.46*60000+ 20.69*60000 = 1,749,167.52