MATH 1140 FINAL EXAM 2 | VERIFIED SOLUTION

(f) The following table gives the R2s from auxiliary regressions between the explanatory variables as well as the sample correlations between the explanatory variables. The results suggest that there are no substantial correlations between pt and the advertising variables, but the correlation between at and a2 is relatively high. Whether or not it is a problem depends on whether we have been able to estimate the effect of advertising on total revenue sufficiently precisely. In this regard the standard error of the coefficient of at is relatively small, but that for the coefficient of a2 is relatively large, suggesting collinearity could be preventing us from getting a precise estimate of this coefficient. Auxiliary Sample Correlation with t t t