1. Mr. Alpha: “looking at the data, I see that the amount of pies we sell varies from market to...

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1. Mr. Alpha: “looking at the data, I see that the amount of pies we sell varies from market to market and quarter to quarter. How good is your model at explaining that variation? Is there any way to measure how much of that variation is explained?” XXXXXXXXXXMs. Beta: “Well your model might help us predict for this dataset, but when I took statistics in my MBA program, they told us to make sure the model is statistically significant –usually at the 5% level. Is your model significant at that level? I know what Mr. Alpha asked, but does your answer to him guarantee significance for me?” XXXXXXXXXXMr. Cappa: “Well, I’ve been around the block before and all this math doesn’t mean anything unless you can explain it to me in “plain English.” I see you underlined that coefficient on price? In “plain English” what does that coefficient mean? How do we know that price does help explain the number of cakes I sold?”
	
Document Preview: Mr. Alpha:  “looking at the data, I see that the amount of pies we sell varies from market to market and quarter to quarter.  How good is your model at explaining that variation?  Is there any way to measure how much of that variation is explained?”Ms. Beta:  “Well your model might help us predict for this dataset, but when I took statistics in my MBA program, they told us to make sure the model is statistically significant –usually at the 5% level.  Is your model significant at that level?  I know what Mr. Alpha asked, but does your answer to him guarantee significance for me?”Mr. Cappa:  “Well, I’ve been around the block before and all this math doesn’t mean anything unless you can explain it to me in “plain English.”  I see you underlined that coefficient on price?  In “plain English” what does that coefficient mean?  How do we know that price does help explain the number of cakes I sold?”Ms. Beta:  “…and is it significant or does it just fit this data set?”Mr. Alpha:  “Okay, but –I’ve always thought that our customer’s income really drove sales.  I mean, it looked to me like we never sold as many pies in the less affluent markets.  Is that true?  Does your model help us understand that?”Ms. Beta:  “…and is the “income effect” significant?”Mr. Cappa:  “Our EVP has been talking about expanding into  new market.  In this market, the population is 2,550,000, the average income is $41,500 and the competitor’s product sells for $4.75.  Based on your model, if we price our product at $5.25, how many cakes will we sell?”Ms. Beta:  “In my MBA program, we always talk about whether demand was elastic or inelastic.  If we price our product at $5.25, what would be the price elasticity of demand for our product at that price?  Is this elastic or inelastic?”Mr. Cappa:  Forget all that elasticity stuff –that won’t be of any help.  What I need to know is if I am pricing the product right.  If we raised the price of the product by a very small...

David · Accepted Answer

1. Mr. Alpha:  “looking at the data, I see that the amount of pies we sell varies from market to 
market and quarter to quarter.  How good is your model at explaining that variation?  Is there 
any way to measure how much of that variation is explained?”
Yes, the model is good at explaining this variation because here the R-square value is 0.9715, 
which means that 97.15% of the variation in the dependent variable is explained by these 
variables.
2. Ms. Beta:  “Well your model might help us predict for this dataset, but when I took statistics in 
my MBA program, they told us to make sure the model is statistically significant –usually at the 
5% level.  Is your model significant at that level?  I know what Mr. Alpha asked, but does your 
answer to him guarantee significance for me?”
Yes, the model is statistically significant because here the P-value for ANOVA table is less than 
0.05 which is the level of significance so we can conclude that the model is significant and this 
guarantee significance for you.
3. Mr. Cappa:  “Well, I’ve been around the block before and all this math doesn’t mean anything 
unless you can explain it to me in “plain English.”  I see you underlined that coefficient on 
price?  In “plain English” what does that coefficient mean?  How do we know that price does 
help explain the number of cakes I sold?”
The coefficient of price is -39.6593; it means if there is a increase in one unit of price the unit 
sale will be decreased by 40.7059, if all other things remain the same.

1. Mr. Alpha: “looking at the data, I see that the amount of pies we sell varies from market to market and quarter to quarter. How good is your model at explaining that variation? Is there any way to...

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