# Coffee Time: Multiple regression, Hypothesis testing

A. Laura wanted to build a multiple regression model based on advertising expenditures and coffee times price index. Based on the selection of all normal values she obtained the following:

1) Multiple R = 0.738

2) R-square = 0.546

By using lagged values she came up with the following:

3) Multiple R = 0.755

4) R-square = 0.570

Explain the differences in using these different models. How could CoffeeTime further optimize this model?

b. Tourism is one consideration for CoffeeTime's future. A survey of 1,233 visitors to Mumbai last year revealed that 110 visited a small cafÃ© during their visit. Laura claims that 10% of tourists will include a visit to a cafÃ©. Use a 0.05 significance level to test her claim. Would it be wise for her to use that claim in trying to convince management to increase their advertising spending to travel agents? Explain.

c. Finally, what additional strategy (or variation on a given strategy) would you recommend to the key decision maker in the simulation to solve the challenge given? Prepare a 250-word memo to the simulation's key decision maker advocating your recommendation

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#### Solution Preview

a. Laura wanted to build a multiple regression model based on advertising expenditures and coffee time's price index price index. Based on the selection of all normal values she obtained the following:

1) Multiple R = 0.738

2) R-square = 0.546

By using lagged values she came up with the following:

3) Multiple R = 0.755

4) R-square = 0.570

Explain the differences in using these different models. How could CoffeeTime further optimize this model?

r^2= 0.546 means that the model explains 54.60% of the variation

r^2= 0.570 means that the model explains 57.00% of the variation

So using the lagged values means that there is an improvement in the ability to predict for the model .

Using normal variables means that the explanatory variables (also called independent variables) of the same period (advertising expenditures and price index) would be used for predicting the predicted variable (also called the dependent variable) of a time period .

Using lagged variables means that the explanatory ...

#### Solution Summary

Answers to questions on multiple regression model based on advertising expenditures and coffee times' price index and hypothesis testing for Coffee Time.