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:

Sales^t  = 13.35 + 0.02Advertising Costs_t−1 − 0.58Unemployment Rate_t−1.

a. Hiroshi had budgeted $660 toward advertising costs in May 2009. Make a forecast for Sales for June 2009 if the unemployment rate in May 2009 was 8.9%. (Enter your answer in dollars not in thousands.)

Sales^t = $_______

b. What will be the forecast if he raises his advertisement budget to $680? (Enter your answer in dollars not in thousands.)

  

Sales^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	Sales^ t
660	$
680	$

Answer 1