Expenditure on advertising per year in millions

Reference no: EM131059724

Question 2

In the following regression output using data on 40 ferns In Ine textile Industry, the variable PROFIT is measured in millions of dollars per year. ADV Is expenditure on advertising per year in millions. and RD Is expenditure on research ar4 development per year In morons of dollars. We obtain:

Dependent Variable: log(PROFIT) Method: Least Squares

Sample: 1 40

Included observations: 40

Variable	Coefficient Sid. Env [-Statistic		Prob.
C	.3.12783	0.601003 .6242877	0.08000
log(ADV)	0.029471	0.012481 2.365059	0.02338
RD	0.055912	0.024839 2.250879	0.03042
R-squared	0.239443	Mean dependent var	4.121691
Adjusted R•squared 0.218283		S.D. dependent var	1.552842
S.E. of regression	0.249231	Make Info criterion	2.484222
Sum seuared maid	7.144781	Schwarz criterion	1.484273
Log likelihood	-11. 1345	Hannan-Qulnn otter.	2.732453
F-statistic	5.824278	Durbin-Watson scat	1.745827
Prob(F-stalistic)	0.008323

where the logadthms are to base a.

a) If annual expenditure on research and development iS 10 miliOn dOliaffi, and annual expenditure on advertising la 10 million dollars, meat is the predicted amount of profit?.

b) How does the predicted value of PROFIT respond to changes in ADV?

c) How Coos the predicted value of PROFIT respond to changes in RD?

d) A Ramsey RESET lest is performed. Interpret the result below. (For example, what are the null and alternative hypotheses here? What exactly Is being tested? What Is the conclusion?)

Ramsey RESET Test

Specification: Log(PROFIT) C Log(ADV) RD Omitted Variables: Squares of fitted values

Reference no: EM131059724

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