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Econometrics Test 1

Test 1

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80 views3 pages

Econometrics Test 1

Test 1

Uploaded by

ygantsa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Faculty of Business & Economic Sciences

Department of Economics

Diploma in Economics
Econometrics (ECO3022/BED3332)
Test 1
2pm to 5 pm 16 September 2021
50 marks

Instructions
Answer ALL questions

A newly established business is conducting an analysis on the factors which could improve
the sales revenue of the organisation. The firm has hired you conduct the analysis. You decide
to run an Ordinary least squares regression Model to investigate the impact of strategic
options available to boost sales. In your model you have decided to include price of the
product and advertising expenditure as explanatory variables.
Question 1
Before you run a regression model it important for you to have an understanding of the prior
expectations between dependent and independent variables. You are supposed to use
economic theories and reasoning using business knowledge to come up with the expected
signs of the coefficient
Question 1 (a)
What is the expected relationship that likely to exist between sales revenue (Dependent
Variable) and Price of product (independent variable?) (5 Marks)
Question 1 (b)
What is the expected relationship that likely to exist between sales revenue (Dependent
Variable) and advertising expenditure (independent variable?) (5 Marks).
Question 2
You are supposed to formulate a regression model using the explanatory variables stated
above. The regression model must meet all the conditions of the Classical Linear Regression
Model (3 Marks)
Question 3
Consider the following OLS regression results from a study of the determinants of sales
revenue for newly established firm on Table 1. The variables are explained as follows:
Sales = Sales Revenue
Price = Price of the Product
Advert = Advertising Expenditure

Table 1: Eview Output


Dependent Variable: SALES
Method: Least Squares

Variable Coefficient Std. Error t-Statistic Prob.

PRICE -7907.854 1095.993 -7.215241 0.0000


ADVERT 1.862584 0.683195 2.726283 0.0080
C 118913.6 6351.638 18.72172 0.0000

R-squared 0.448258 Mean dependent var 77374.67


Adjusted R-squared 0.432932 S.D. dependent var 6488.537
S.E. of regression 4886.124 Akaike info criterion 19.86536
Sum squared resid 1.72E+09 Schwarz criterion 19.95806
Log likelihood -741.9512 Hannan-Quinn criter. 19.90238
F-statistic 29.24786 Durbin-Watson stat 2.183037
Prob(F-statistic) 0.000000

Source: Own Computation


Question 3 (a)
Comment on the signs of the coefficients, Justify whether the signs align with prior
expectations or not, also comment on the statistical significance using the P Value of each
coefficient (10 Marks).
Question 3 (b)
Estimate the Total Sales Revenue that the firm will get given that the firm has decided to
charge a price of R50 per product and approve a budget of R20 000 for advertising
expenditure (5 marks)
Question 3 (c)
Given relationship that has been established between sales revenue and price of product, what
advice can you give to the administrators of company? Hint: Use knowledge of elasticity to
come up with your answer (5 marks)

Question 3 (d)
Comment on the joint significance of the explanatory variables. Hint: Provide a brief
explanation of statistic used to measure the joint significance and then identify the statistic on
the Eviews Output provided and comment (5 Marks).
Question 3 (c)
Comment on the goodness of fit of model. Hint: Provide a brief explanation of statistic used
to measure goodness of fit and then identify the statistic on the Eviews Output provided and
comment (5 Marks).
Question 4
Over the past weeks since the business started operating, there has been unexpected changes
in weather, table 2 below shows a scatter plot of Daily temperature and sales revenue per day

Question 4 (a)
Comment on the scatter plot in Table 2, forecast how sales Revenue is likely to respond to
changes in seasons during the year and give the best to advice the business administrators
(Hint: Advice should be based on relocation and seasonal operational adjustment to weather
patterns) (7 Marks)

All The Best

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