Question: Akiko Hamaguchi, the manager at a small
Akiko Hamaguchi, the manager at a small sushi restaurant in Phoenix, Arizona, is concerned that the weak economic environment has hampered foot traffic in her area, thus causing a dramatic decline in sales. Her cousin in San Francisco, Hiroshi Sato, owns a similar restaurant, but he has seemed to prosper during these rough economic times. Hiroshi agrees that higher unemployment rates have likely forced some customers to dine out less frequently, but he maintains an aggressive marketing campaign to thwart this apparent trend. For instance, he advertises in local papers with valuable two-for-one coupons and promotes early-bird specials over the airwaves. Despite the fact that advertising increases overall costs, he believes that this campaign has positively affected sales at his restaurant. In order to support his claim, Hiroshi provides his restaurant’s monthly sales (in $1,000s) and advertising costs (in $), as well as the monthly unemployment rate (in %) from San Francisco County. A portion of the data is shown in the accompanying table.
a. Estimate a simple regression model, Sales = β0 + β1Advertising + ε, as well as a multiple regression model, Sales = β0 + β1Advertising + β2Unemployment + ε.
b. Show that the multiple regression model is more appropriate for making predictions.
c. Make predictions for sales with an unemployment rate of 6% and advertising costs of $400 and $600.
Transcribed Image Text:
Month Year Sales Advertising Costs Unemployment Rate January 2006 27.0 550 4.6 February 2008 24.2 425 4.3 May 2009 27.4 550 9.1
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