An insurance company wants to determine how its annual operating costs depend on the number of home insurance (X1) and automobile insurance (X2) policies that have been written. The file P10_31.xlsx contains relevant information for 10 branches of the insurance company. The company believes that a multiplicative model might be appropriate because operating costs typically increase by a constant percentage as the number of either type of policy increases by a given percentage.
Use the given data to estimate a multiplicative model for this insurance company. Interpret your results. Does a multiplicative model provide a good fit with these data? Answer by calculating the appropriate standard error of estimate and R2 value, based on original units of the dependent variable.