Question

Hiroshi Sato, an owner of a sushi restaurant in San Francisco, has been following an aggressive marketing campaign to thwart the effect of rising unemployment rates on business. He used monthly data on sales ($1,000s), advertising costs ($), and the unemployment rate (%) from January 2008 to May 2009 to estimate the following sample regression equation:

SalesˆtSales^t  = 15.05 + 0.04Advertising Costs_t−1 − 0.69Unemployment Rate_t−1.

a. Hiroshi had budgeted $540 toward advertising costs in May 2009. Make a forecast for Sales for June 2009 if the unemployment rate in May 2009 was 9.1%. (Enter your answer in dollars not in thousands.)

SalesˆtSales^t               $

b. What will be the forecast if he raises his advertisement budget to $610? (Enter your answer in dollars not in thousands.)

  

SalesˆtSales^t               $

c. Reevaluate the above forecasts if the unemployment rate was 9.3% in May 2009. (Enter your answers in dollars not in thousands.)

Advertising	SalesˆSales^ t
540	$
610	$

Answer 1

a) forecasted sales =(15.05+0.04*540-0.69*9.1)*1000=30371

b) forecasted sales =(15.05+0.04*610-0.69*9.1)*1000=33171

c)

Advertising	SalesˆSales^ t
540	$30233
610	$33033