The Editors of a National Automotive Magazine Recently Studied 30

question 94

Multiple Choice

The editors of a national automotive magazine recently studied 30 different automobiles sold in the United States with the intent of seeing whether they could develop a multiple regression model to explain the variation in highway miles per gallon. A number of different independent variables were collected. The following regression output is the result of using a forward selection stepwise regression approach. Based on the regression output, which of the following statements is true?

• A) There is a multicollinearity problem since the standard error of the estimate actually increased when the second variable, "Price as Tested," entered the model.
• B) The R-square value increased when the second variable entered the model.
• C) Neither variable in the model is statistically significant at the alpha = 0.05 level.
• D) The reason that only two variables entered the model is due to the small sample size used in this study.

---

Definitions:

Output Unit

The quantity produced or service provided over a given period of time, often used to measure productivity.

Pure Monopolist

An exclusive provider of a particular good or service in the market, facing no competition.

MR = MC Rule

The principle that a firm will maximize its profit (or minimize its losses) by producing the output at which marginal revenue and marginal cost are equal, provided product price is equal to or greater than average variable cost.

Pure Competition

A business environment where many small companies sell identical products and there are no barriers to entering or leaving the market, resulting in perfect competition.