Question
Enterprise Industries produces Fresh, a brand of liquid laundry detergent. In order to manage its inventory more effectively and make revenue projections, the company would
Enterprise Industries produces Fresh, a brand of liquid laundry detergent. In order to manage its inventory more effectively and make revenue projections, the company would like to better predict demand for Fresh. To develop a prediction model, the company has gathered data concerning demand for Fresh over the last 30 sales periods (each sales period is dened to be a four-week period).
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Here, for each sales period,
y = demand for the large size bottle of Fresh (in hundreds of thousands of bottles) in the sales period
x1 = price (in dollars) of Fresh as offered by Enterprise Industries in the sales period
x2 = average industry price (in dollars) of competitors similar detergents in the sales period
x3 = Enterprise Industries advertising expenditure (in hundreds of thousands of dollars) to promote Fresh in the sales period
You develop the following model to examine the effect of the three x variables on demand for Fresh (y): y=\beta_0 +\beta_1x_1+\beta_2 x_2 +\beta_3x_3+\varepsilon y = 0 + 1 x 1 + 2 x 2 + 3 x 3 + . (Note: In Week 15, you learned a simple linear regression where there is only one independent variable. Q5 asks you to add more than one a variable in the equation. This is called a multiple linear regression as there are multiple independent variables. A multiple linear regression is nothing but a simple extension of a simple linear regression. The estimation using Excel is the same except that you now include three columns (instead of just one) for the independent variables. The interpretation of coefficients in a multiple linear regression is the same to that in a simple linear regression. That is, beta1 represents the effect of a one unit change in x1 on y; beta2 represents the effect of a one unit change in x2 on y, and so on.)
1) Use MS Excel and estimate the above linear regression model. Write the estimated regression model.
2) Fill the blanks below. (10 points) If the price of Fresh increases one dollar, the sales of Fresh will decrease as many as ______ bottles. If the average industry price (in dollars) of competitors similar detergents increases one dollar, the sales of Fresh will increase as many as __________ bottles. If Enterprise Industries reduces advertising expenditure by $100,000, then the sales of Fresh will decrease as many as ______ bottles.
3) What is the demand for Fresh Detergent in a future sales period when Enterprise Industries price for Fresh will be x1 = 3.70, the average price of competitors similar detergents will be x2 = 3.90 and Enterprise Industries advertising expenditure for Fresh will be x3 = 6.50?
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