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:

Time Series

A sequence of data points typically measured at successive points in time, spaced at uniform time intervals.

Mean Absolute Deviation

The average of the absolute differences between each data point in a set and the mean of that set.

Actual Value

The real, true, or observed value of a variable or attribute, without estimation or error.

Forecast Value

An estimate of a future numerical quantity, often used in the context of sales, weather, or financial performance.