When a Regression Model Was Developed Relating Sales (Y) of a Company

question 59

Essay

When a regression model was developed relating sales (y) of a company to its product's price (x₁), the SSE was determined to be 495. A second regression model relating sales (y) to product's price (x₁) and competitor's product price (x₂) resulted in an SSE of 396. At $\alpha$ = 0.05, determine if the competitor's product's price contributed significantly to the model. The sample size for both models was 33.

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Definitions:

Variable Component

A portion of a cost or expense that varies directly with changes in production volume, business activity, or other variables.

Least-Squares Regression

A statistical method used to determine a line of best fit by minimizing the sum of the squares of the differences between observed values and those predicted by the model.

Inspection Cost

Expenses associated with the activities necessary to ensure that products or services meet the required standards and specifications.

Contribution Format

A format for the income statement that divides variable costs from fixed costs to emphasize the contribution margin.