As head of sales of the leading technology and innovation magazine publisher TECCIT, your bonus is dependent on the firms revenue. Revenue changes from season to season, as subscriptions and advertizing deals are entered or renewed. From your experience in the publishing business you know that the revenue in a season is a function of the number of magazines sold in the previous season and can be described as yt = 1000 + 0.9xt1 + t with uncorrelated residuals t N(0, 1000) where y is revenue and x is number of magazines sold.

a. What is unconditionally expected revenue if unconditionally expected sales are 8,500?

b. A rival publisher offers you a contract identical to your current contract (same base pay and bonus). Based upon a confidential interview, you know that the same revenue model with identical coefficients is appropriate for your rival. The rival has sold an average of 9,000 magazines in previous seasons but only 5,650 this season. Will you accept the offer? Why or why not?

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