High-low versus regression method. (CIMA, heavily adapted) Anna Martinez, the financial manager at the Casa Real restaurant, is working with Jan Brown, the marketing manager, to establish whether there is any relationship between newspaper advertising and sales revenue at the restaurant. They obtain the following monthly data for the past 10 months:

Month Revenues Advertising E March $60,000 $2,400 April 84,000 3,600 May 66,000 1,800 June 78,000 4,200 July 66,000 1,200 August 78,000 2,400

$eptember 54,000 1,800 October 96,000 4,800 November 66,000 3,000 December 72,000 3,000 They estimate the following regression equation:

y = $47,402 + (8.723 X Advertising Expense), where y is the monthly revenue Required Plot the relationship between advertising expense and revenues.
Draw the regression line and evaluate it using the criteria of economic plausibility, good¬
ness of fit, and slope of the regression line.
Use the high-low method to compute the cost function, relating advertising expense and revenues.
Using

(a) the regression equation and

(b) the high-low equation, what is the increase in revenues for each $1,000 spent on advertising within the relevant range?
Should Martinez and Brown use the cost function estimated from the regression method or the high-low method to predict the effect of advertising on revenues?
Explain briefly.