Consider the Model Y = β₀ + β₁x + β₂d

question 112

Multiple Choice

Consider the model y = β₀ + β₁x + β₂d + ε,where x is a quantitative variable and d is a dummy variable.For d = 1,the predicted value of y is computed as

• A) = b₀ + b₁x + b₂x
• B) = b₀ + b₁x
• C) = (b₀ +b₁)x + b₂

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Definitions:

Contribution Margin

The amount by which sales revenue exceeds variable costs, contributing to covering fixed costs and profit generation.

Fixed Costs

Expenses that do not change with the level of production or sales activities within a short time frame, such as rent, salaries, and insurance.

Variable Cost

Charges that adjust in accordance with the quantity of production or the scale of sales.

Incremental Profit

The additional profit derived from a specific business decision, comparing the profit levels before and after the decision.