Question

A regression model is used to forecast sales based on advertising dollars spent. The intercept is $500 and the slope is $35. The R-squared value is 0.90. Which is the best statement about this forecasting model?

a. The correlation coefficient between sales and advertising is 0.81.
b. For every $1 spent on advertising, sales are predicted to increase by $500.
c. For every $35 spent on advertising, sales are predicted to increase by $1.
d. Even if no money is spent on advertising, the company realizes $500 of sales.

Answer 1

Answer: d. Even if no money is spent on advertising, the company realizes $500 of sales.

Step-by-step explanation:

In a regression model, the intercept term tells us the value of y when the value of x is zero.

According to this model, the y value here is the forecasted sales. The x value is the advertising dollars spent and the intercept is $500.

This therefore means that when no money is spent on advertising i.e. x = 0, the sales(y) would be $500 which is the intercept term.