Reference no: EM132767293
Question - High-low method; Regression Analysis
(CIMA, adapted) Catherine McCarthy, sales manager of Baxter Arenas, is checking to see if there is any relationship between promotional costs and ticket revenues at the sports stadium. She obtains the following data for the past 9 months:
|
Month
|
Ticket Revenues
|
Promotional Costs
|
|
April
|
$200,000
|
$52,000
|
|
May
|
270,000
|
65,000
|
|
June
|
320,000
|
80,000
|
|
July
|
480,000
|
90,000
|
|
August
|
430,000
|
100,000
|
|
September
|
450,000
|
110,000
|
|
October
|
540,000
|
120,000
|
|
November
|
670,000
|
180,000
|
|
December
|
751,000
|
197,000
|
She estimates the following regression equation: Ticket revenues = $65,583 + ($3.54 x Promotional costs)
Required -
1. Plot the relationship between promotional costs and ticket revenues. Also draw the regression line and evaluate it using the criteria of economic plausibility, goodness of fit, and slope of the regression line.
2. Use the high-low method to compute the function relating promotional costs and revenues.
3. Using (a) the regression equation and (b) the high-low equation, what is the increase in revenues for each $10,000 spent on promotional costs within the relevant range? Which method should Catherine use to predict the effect of the promotional costs on ticket revenues? Explain briefly.