Question

As reported in the chapter, quarterly revenue (in billions of dollars) for Nike is estimated as

R= 3.820 + 0.139t + 0.168 Upper D1 + 0.482 Upper D2 + 0.594 Upper D3, where t is a time trend, Upper D1 is a dummy variable indicating the year's first quarter, Upper D2 is a dummy variable indicating the second quarter, and Upper D3 is a dummy variable indicating the third quarter.
What does this estimation tell us about first quarter revenues for Nike compared to the revenue in the fourth quarter? All else equal, in the first quarter, did Nikes revenues decrease? remain unchanged? or increase? relative to revenues in the fourth quarter.

Answer 1

Nike's revenues in the first quarter increased by 16.8% relative to the fourth quarter.

Step-by-step explanation:

When assigning dummy variables, a number of dummies (the total number of variables less one) are always included.

In this case, Nike revenues are related to the dummies for each of the quarters in the year less 1. Base on this, the coefficient of 16.8 for the first quarter dummy indicates that the first quarter revenues for Nike increased by 16.8%, more than as compared to the fourth quarter revenues.

So, this quarterly dummies projects the coefficients which indicate the increase or decrease which was relative to the fourth quarter revenues. Base on this, the Nike's revenues in the first quarter increased by 16.8% relative to the fourth quarter.