Anna Schaub, the financial manager at the Mangiamo restaurant, is checking to see if there is any relationship between newspaper advertising and sales revenues at the restaurant. She obtains the following data for the past 10 months:

She estimates the following regression equation:

Monthly revenues = $ 46,443 + ($ 6.584 * Advertising costs)

1. Plot the relationship between advertising costs and revenues. Also draw the regression line and evaluate it using the criteria of economic plausibility, goodness of fit, and slope of the regression line.

2. Use the high-low method to compute the function relating advertising costs and revenues.

3. Using

(a) The regression equation

(b) The high-low equation, what is the increase in revenues for each $ 1,000 spent on advertising within the relevant range? Which method should Schaub use to predict the effect of advertising costs on revenues? Explain briefly.

Transcribed Image Text:

Month Revenues Advertising Costs March $51,000 72,000 56,000 64,000 56,000 64,000 43,000 83,000 $1,500 3,500 April May 1,000 4,000 June July 500 August September October 1,500 1,000 4,500 November 56,000 2,000 December 61,000 2,000