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Scatter Plot Advertisment Vs Sales

The document presents a linear regression analysis of the relationship between advertisement spending (x) and sales (y) for 12 observations. It finds a strong positive linear correlation between the variables. The fitted regression model is y= 4.9216x - 25.168, with the slope of 4.9216 indicating that for every $1000 increase in advertising, sales increase by $49216. The slope is statistically significant at the 5% level. The coefficient of determination (r^2) is 0.6785, meaning that 67.85% of the variation in sales is explained by advertisement spending. When using the model to predict sales for $950000 in advertising, it underestimates actual sales.

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Evans Oduor
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115 views5 pages

Scatter Plot Advertisment Vs Sales

The document presents a linear regression analysis of the relationship between advertisement spending (x) and sales (y) for 12 observations. It finds a strong positive linear correlation between the variables. The fitted regression model is y= 4.9216x - 25.168, with the slope of 4.9216 indicating that for every $1000 increase in advertising, sales increase by $49216. The slope is statistically significant at the 5% level. The coefficient of determination (r^2) is 0.6785, meaning that 67.85% of the variation in sales is explained by advertisement spending. When using the model to predict sales for $950000 in advertising, it underestimates actual sales.

Uploaded by

Evans Oduor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 5

a) Construct a scatter plot with this data

Advertisement ($'000) Sales ($'000) Scatter Plot: Advertisement Vs sales


1068 4489
7000
1026 5611
767 3290 6000
f(x) = 4.92159579827884 x − 25.1682340647863
885 4113 5000
1156 4883
1146 5425 4000

892 4414 3000


938 5506
2000
769 3346
677 3673 1000
1184 6542
0
1009 5088 600 700 800 900 1000 1100 1200

b) Do you observe a relationship between both variables?


Yes, there is a strong positive linear correlation between the two variables which are advertisement and sales.

c) Use Excel to fit a linear regression line to the data. What is the fitted regression model?
The above presents the linear regression line. The fitted regression equation y= 4.921x - 25.168
which is similar to regression equation: sales = -25.1682 + 4.9216*Advertisement

Regression Statistics
Multiple R 0.8237332977
R Square 0.6785365458
Adjusted R Square 0.6463902004
Standard Error 592.73357275
Observations 12

ANOVA
df SS MS F Significance F
Regression 1 7415845.78406 7415845.784 21.10773517 0.0009886904
Residual 10 3513330.88261 351333.0883
Total 11 10929176.6667

Coefficients Standard Error t Stat P-value Lower 95%


Intercept -25.16823406 1042.25992711 -0.02414775 0.981209823 -2347.4680715
X Variable 1 4.9215957983 1.07123591494 4.594315528 0.00098869 2.53473343655

d) Slope or gradient and what it indicates as well as the significance of the slope?
slope = 4.9216 which implies that with an increase of $1000 in advertising cost,
there was a corresponding sales increase of 49216$.
With being t=4.594315528, p<5%, the null hypothesis becomes rejected at 5% significance level
and conclude that slope is significant b1 =/= 0

e) Defining the intercept? Is it meaningful?


The intercept here is = -25.1682 implying that this value is not meaningful
given there is no point sales can be negative.

f) What is the value of the regression coefficient,r? What is the value of the coefficient of determination, r^2? W
regression coefficient, r = sqrt(R^2) = 0.823733298
coefficient of determination, r^2 = 67.85%
The sales variation is 67.85% and is effectively explained by advertisement.
The above percentage is moderate and fitted model is a moderate fit to the data.

h) Use the model to predict sales and the business spends $950,000 in advertisement. Does the model underestim
x= 950
since y = 4.9216*950 - 25.168 is the fitted regression model, this therefore is 4650.352
With sales at =$4650.352, it can be concluded that the model underestimates sales
ment Vs sales

7863

00 1100 1200 1300

ertisement and sales.

921x - 25.168

Upper 95% Lower 95.0% Upper 95.0%


2297.131603 -2347.46807 2297.131603
7.30845816 2.534733437 7.30845816
of determination, r^2? What does r^2 tell us?

oes the model underestimate or overestimates ales?


SUMMARY OUTPUT

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