XR19-15 Deciding where to locate a new retail store is one of the most important decisions that a…

XR19-15 Deciding where to locate a new
retail store is one of the most important decisions that a manager can make.
The manager of a chain of DVD rental stores plans to use a regression model to
help select a location for a new store. He decides to use annual gross revenue
as a measure of success, which is the dependent variable. The manager believes
that determinants of success include the following variables:

• Number of people living within 1 km of
the store (PEOPLE)

• Mean income of households within 1 km of
the store (INCOME)

• Number of competitors within 1 km of the
store (
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XR19-15 Deciding where to locate a new
retail store is one of the most important decisions that a manager can make.
The manager of a chain of DVD rental stores plans to use a regression model to
help select a location for a new store. He decides to use annual gross revenue
as a measure of success, which is the dependent variable. The manager believes
that determinants of success include the following variables:

• Number of people living within 1 km of
the store (PEOPLE)

• Mean income of households within 1 km of
the store (INCOME)

• Number of competitors within 1 km of the
store (COMPTORS)

• Rental price of a newly released movie
(PRICE). The manager randomly selects 50 DVD stores and records the values of
each of the variables listed above plus annual gross revenue (REVENUE). He
proposes the following multiple regression model:

a Estimate the model and find the estimated
regression equation.

b What are the coefficient of determination
(R2) and the coefficient of determination adjusted for degrees of
freedom (R) 2?

What do these statistics tell you about the
regression equation?

c What does the standard error of estimate
tell you about the regression model?

d Test the overall utility of the model.
What does the p-value of the test statistic tell you?

e Which independent variables are linearly
related to the revenue? Explain.

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