The variable rdintens is expenditures on research and development (R&D) as a percentage of sales. Sales are measured in millions of dollars. The variables profmarg is profits as a percentage of sales.
Using the data in RDCHEM.RAW for 32 firms in the chemical industry, the following equation is estimated:

(i) Interpret the coefficient on log(sales). In particular, if sales increases by 10%, what is the estimated percentage point change in rdintensl Is this an economically large effect?
(ii) Test the hypothesis that R&D intensity does not change with sales against the alternative that it does increase with sales. Do the test at the 5% and 10% levels.
(iii) Interpret the coefficient on profmarg. Is it economically large?
(iv) Does profmarg have a statistically significant effect on rdintens?

Transcribed Image Text:

rdintens 472 321 log(sales) +050 profmarg (1.369) 216) n 32, R2099 (046)