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    Linear regression to justify advertising

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    You are the marketing manager, in charge of a $1 million advertising budget, for two branches of the Long and Foster Real Estate Company. Because of slumping sales, the company president announces plans for an across-the-board budget cut of 10 percent. However, each department manager will have an opportunity to present his/her case for why his/her departmentâ??s budget should not be cut. If you were to use a simple linear regression model to support your case for avoiding a cut to your advertising budget:
    a. What variables would you use for your regression equation and why?
    b. What would be your regression equation?
    c. To support your case to avoid the budget ax, would you want the sign of the parameter estimate on the independent variable to be positive or negative? Why?

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    Solution Preview

    A regression equation is a mathematical model that predicts the results of varying one or more independent variables upon an dependent variable. In this case, your dependent variable will be the sales your department generates. The manager will not want this value to decline. In multiple regression, you would use several independent variables (whatever is most likely to affect sales). In the case of simple linear regression, we use only one independent variable, and the equation takes the form ...

    Solution Summary

    Construction of a regression equation to justify advertising expenses