TABLE 15-1 A Certain Type of Rare Gem Serves as a Status

question 18

Multiple Choice

TABLE 15-1
A certain type of rare gem serves as a status symbol for many of its owners. In theory, for low prices, the demand increases and it decreases as the price of the gem increases. However, experts hypothesize that when the gem is valued at very high prices, the demand increases with price due to the status owners believe they gain in obtaining the gem. Thus, the model proposed to best explain the demand for the gem by its price is the quadratic model:
Y = β₀ + β₁X + β₁X² + ε
where Y = demand (in thousands) and X = retail price per carat.
This model was fit to data collected for a sample of 12 rare gems of this type. A portion of the computer analysis obtained from Microsoft Excel is shown below:
-Referring to Table 15-1, what is the correct interpretation of the coefficient of multiple determination?

• A) 98.8% of the total variation in demand can be explained by the linear relationship between demand and price.
• B) 98.8% of the total variation in demand can be explained by the quadratic relationship between demand and price.
• C) 98.8% of the total variation in demand can be explained by the addition of the square term in price.
• D) 98.8% of the total variation in demand can be explained by just the square term in price.

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Definitions:

Destinations

Final points or locations where goods or individuals are intended to go or be delivered.

Optimal Solution

An optimal solution is the most efficient, effective, or achievable answer or resolution to a problem, often found through methods of optimization.

Sources

The origins from which something is obtained or derived, often used in reference to gathering information or materials.

Destinations

The intended end points or locations where goods or travelers are headed.