(Situation P) Below Are the Results of a Survey of America's

question 108

Multiple Choice

(Situation P) Below are the results of a survey of America's best graduate and professional schools. The top 25 business
schools, as determined by reputation, student selectivity, placement success, and graduation rate, are listed in the table.
For each school, three variables were measured: (1) GMAT score for the typical incoming student; (2) student acceptance
rate (percentage accepted of all students who applied) ; and (3) starting salary of the typical graduating student. $$\begin{array} { l l l l l } & \text { School } & \text { GMAT } & \text { Acc. Rate } & \text { Salary } \\\hline \text { 1. } & \text { Harvard } & 644 & 15.0 \% & \$ 63,000 \\\text { 2. } & \text { Stanford } & 665 & 10.2 & 60,000 \\\text { 3. } & \text { Penn } & 644 & 19.4 & 55,000 \\\text { 4. } & \text { Northwestern } & 640 & 22.6 & 54,000 \\\text { 5. } & \text { MIT } & 650 & 21.3 & 57,000 \\\text { 6. } & \text { Chicago } & 632 & 30.0 & 55,269 \\\text { 7. } & \text { Duke } & 630 & 18.2 & 53,300 \\\text { 8. } & \text { Dartmouth } & 649 & 13.4 & 52,000 \\\text { 9. } & \text { Virginia } & 630 & 23.0 & 55,269 \\\text { 10. } & \text { Michigan } & 620 & 32.4 & 53.300 \\\text { 11. } & \text { Columbia } & 635 & 37.1 & 52,000 \\\text { 12. } & \text { Cornell } & 648 & 14.9 & 50,700 \\\text { 13. } & \text { CMU } & 630 & 31.2 & 52,050 \\\text { 14. } & \text { UNC } & 625 & 15.4 & 50,800 \\\text { 15. } & \text { Cal-Berkeley } & 634 & 24.7 & 50,000 \\\text { 16. } & \text { UCLA } & 640 & 20.7 & 51,494 \\\text { 17. } & \text { Texas } & 612 & 28.1 & 43,985 \\\text { 18. } & \text { Indiana } & 600 & 29.0 & 44,119 \\\text { 19. } & \text { NYU } & 610 & 35.0 & 53,161 \\\text { 20. } & \text { Purdue } & 595 & 26.8 & 43,500 \\\text { 21. } & \text { USC } & 610 & 31.9 & 49,080 \\\text { 22. } & \text { Pittsburgh } & 605 & 33.0 & 43,500 \\\text { 23. } & \text { Georgetown } & 617 & 31.7 & 45,156 \\\text { 24. } & \text { Maryland } & 593 & 28.1 & 42,925 \\\text { 25. } & \text { Rochester } & 605 & 35.9 & 44,499\end{array}$$ The academic advisor wants to predict the typical starting salary of a graduate at a top business school using GMAT
score of the school as a predictor variable. A simple linear regression of SALARY versus GMAT using the 25 data points
in the table are shown below. $$\beta _ { 0 } = - 92040 \quad \hat { \beta } _ { 1 } = 228 \quad s = 3213 \quad r ^ { 2 } = .66 \quad r = .81 \quad \mathrm { df } = 23 \quad t = 6.67$$
-For the situation above, give a practical interpretation of r = .81.

• A) We estimate SALARY to increase 81% for every 1-point increase in GMAT.
• B) There appears to be a positive correlation between SALARY and GMAT.
• C) 81% of the sample variation in SALARY can be explained by using GMAT in a straight -line model.
• D) We can predict SALARY correctly 81% of the time using GMAT in a straight-line model.

---

Definitions:

Sunk Cost

A cost that has already been incurred and cannot be recovered.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset up to a specific point in its life.

Total Cost Concept

An approach that considers all variable and fixed costs associated with the production of goods or services.

Manufacturing Cost

The total expense involved in the manufacturing of a product, including raw materials, labor, and overhead costs.