The data below record, for a sample of 10 firms, the number of staff employed in Research and Development (X), and annual profits in millions of pounds (Y).
(b) It is now suggested that profitablity might be related more than linearly to the number of R&D staff. Regress profits on the square of R&D staff, and obtain an alternative prediction of the profitability of a firm employing 20 R&D staff.
(c) Compare the results of the two regressions. Which is to be preferred, and why? What should alert one to the weaknesses of the less preferred regression?
Solution attaches a .doc file to show and explain these four questions on regression of a given table of data.