Question

QUESTION 2 Brewsky's is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patron­izing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows: Average monthly customer-visits 1,462 Average monthly total costs $4,629 Regression Results Intercept $1,496 b coefficient $2.08 R2 0.86814In a regression equation expressed as y = a + bx, how is the letter b best described? (CMA adapted)

Answer 1

b is the amount by which the costs of the stores (i.e. y) will increase whenever the number of customers patron­izing the stores (i.e. x) increases by one.

Explanation:

How is the letter b best described?

b is the amount by which the costs of the stores (i.e. y) will increase whenever the number of customers patron­izing the stores (i.e. x) increases by one.

That is, b is the coefficient of letter x and it indicates that whenever there is a one unit increase in the number of customers patron­izing the stores (i.e. x), the costs of the stores (i.e. y) will increase by $2.08.

To give an example, the regression equation in the question is expressed as:

y = a + bx ............................ (1)

Where;

y = the costs of the stores = ?

a = Intercept = $1,496

b = coefficient = $2.08

x = the number of customers patron­izing the stores = ?

Assume x = 1, we can predict y by substituting the values to obtain y1 as follows:

y1 = $1,496 + ($2.08 * 1) = $1,496 + $2.08 = $1,498.08

Now, assume x increases by 1 to 2 i.e. x = 2, we can predict y by substituting the values to obtain y2 as follows:

y2 = $1,496 + ($2.08 * 2) = $1,496 + $4.16 = $1,500.16

The the change is y as a result of one unit increase in x from 1 to 2 can then be obtained as follow:

Change in y = y2 - y1 = $1,500.16 - $1,498.08 = $2.08.

This therefore cofirms that b indicates that whenever there is a one unit increase in the number of customers patron­izing the stores (i.e. x), the costs of the stores (i.e. y) will increase by $2.08.