Q1.The global computer software industry is dominated by Microsoft Corp. and a handful of large competitors from the United States. During the early 2000s, fallout from the government's antitrust case against Microsoft and changes tied to the Internet have caused company and industry analysts to question the profitability and long-run advantages of the industry's massive long-term investments in research and development (R&D). The following table shows sales revenue, profit, and R&D data for a n = 15 sample of large firms taken from the U.S. computer software industry. Data are for the most recent fiscal year available on the academic-use version of Compustat PC+ as of September 2001. Net sales revenue, net income before extraordinary items, and research and development (R&D) expenditures are shown. R&D is the dollar amount of company-sponsored expenditures during the most recent fiscal year, as reported to the Securities and Exchange Commission on Form 10-K. Excluded from such numbers is R&D under contract to others, such as U.S. government agencies. All figures are in $ millions.

A. Asimple regression model with sales revenue as the dependent Y variable and R&D expenditures as the independent Xvariable yields the following results (t statistics in parentheses): How would you interpret these findings?

B. Run a simple regression model with net income (profits) as the dependent Y variable.

Q2. The following is the multiple regression equation, (standard errors in parentheses.)

Q = 8,400 - 10 Px + 5 A + 4 Py + 0.05 I

(2.29) (1.36) (1.75) (0.15)

R2 = 0.65 N = 120 F = 35.25

Standard error of estimate = 34.3 Q = Quantity demanded

Px = Price = 1,000 A = Advertising expenditures, in thousands = 40

Py = price of competitor's good = 800 I = average monthly income = 4,000

Interpret the Regression findings.