Problem 40RE

Profit How are a company’s profits related to its sales? Let’s examine data from 71 large U.S. corporations. All amounts are in millions of dollars.

a) Histograms of Profits and Sales and histograms of the logarithms of Profits and Sales appear below. Why are the re-expressed data better for regression?

b) Here are the scatterplot and residuals plot for the regression of logarithm of Profits vs. Log(Sales). Do you think this model is appropriate? Explain.

c) Here’s the regression analysis. Write the equation.

Dependent variable is: Log Profit

R-squared = 48.1%

Variable Coefficient

Intercept -0.106259

LogSales 0.647798

d) Use your equation to estimate profits earned by a company with sales of 2.5 billion dollars. (That’s 2500 million.)

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