Question 2
In the following regression output using data on 40 ferns In Ine textile Industry, the variable PROFIT is measured in millions of dollars per year. ADV Is expenditure on advertising per year in millions. and RD Is expenditure on research ar4 development per year In morons of dollars. We obtain:
Dependent Variable: log(PROFIT) Method: Least Squares
Sample: 1 40
Included observations: 40
|
Variable
|
Coefficient Sid. Env [-Statistic
|
Prob.
|
|
C
|
.3.12783
|
0.601003 .6242877
|
0.08000
|
|
log(ADV)
|
0.029471
|
0.012481 2.365059
|
0.02338
|
|
RD
|
0.055912
|
0.024839 2.250879
|
0.03042
|
|
R-squared
|
0.239443
|
Mean dependent var
|
4.121691
|
|
Adjusted R•squared 0.218283
|
S.D. dependent var
|
1.552842
|
|
S.E. of regression
|
0.249231
|
Make Info criterion
|
2.484222
|
|
Sum seuared maid
|
7.144781
|
Schwarz criterion
|
1.484273
|
|
Log likelihood
|
-11. 1345
|
Hannan-Qulnn otter.
|
2.732453
|
|
F-statistic
|
5.824278
|
Durbin-Watson scat
|
1.745827
|
|
Prob(F-stalistic)
|
0.008323
|
|
|
where the logadthms are to base a.
a) If annual expenditure on research and development iS 10 miliOn dOliaffi, and annual expenditure on advertising la 10 million dollars, meat is the predicted amount of profit?.
b) How does the predicted value of PROFIT respond to changes in ADV?
c) How Coos the predicted value of PROFIT respond to changes in RD?
d) A Ramsey RESET lest is performed. Interpret the result below. (For example, what are the null and alternative hypotheses here? What exactly Is being tested? What Is the conclusion?)
Ramsey RESET Test
Specification: Log(PROFIT) C Log(ADV) RD Omitted Variables: Squares of fitted values