REGRESSION ANALYSIS – statistical technique to analyze A = Adverting Expense in $100,000/yr

an equation
Demand Equation Given: Px=2$ ; I=2.5$ ; Py=1.8$ ; Ps=0.50₡ ; A=1$
Explained & Dependent Explanatory &
Sol.: Qx=1.5 – 3.0Px + 0.8I + 2.0Py – 0.6Ps + 1.2A
Variable Independent Variable =1.5-3.0(2)+0.8(2.5)+2.0(1.8)-0.6(0.50)+1.2(1)
=1.5-6+2+3.6-0.3+1.2
QDx= f(Px, T, I, Py, Pe, N) =2 million pounds

Regression Equation P
ΣP = a1 x Q
Qx = a1 - a2Px + a3T + a4I + a5Py + a6Pf +… 2
= -3 x
(multiple regression) 2
= -3 ; For every 1% decrease in price, qd will
Qx = a1 - a2Px (simple regression)
increase by 3%

Behavior : downward sloping a1 - constant I

ΣI = a2 x
All Positive – expect the D will shift to the right Q
2.5
= 0.8 x 2
FORECASTING TECHNIQUES – predicting the future. = 1 ; For every 1% decrease in income, qd will
increase by 1%
 2 METHODS
 Qualitative – uses primary data Py
ΣPy = a3 x
 Quantitative Q
1.8
1. Regression Analysis =2x 2
2. Time Series = 1.8 ; For every 1% increase for the price of
Trend competitor , there will be 1.8% decrease for the demand
of coffee brand x.
Seasonal Fluctuations
Cyclical Fluctuations Ps
ΣPs = a4 x Q
0.50
Qd = a - a1P + a2T + a3I + a4Py + … = -0.6 x 2
= -0.15 ; For every 1% increase in price of sugar, the
∆Q P qd will decrease by 0.15%
a1 = ∆P ΣP = a1 x Q
A
ΣA = a5 x Q
∆Q T 1
a2 = ΣT = a2 x = 1.2 x2
∆T Q
= 0.6 ; For every 1% increase in advertising expense,
∆Q I the qd will increase by 0.6%
a3 = ∆I
ΣI = a3 x Q

∆Qx Py
a4= Σxy = a4 x
∆Py Qx

Tasty Company Coffee Brand

Regression Equation :
Qx = 1.5 – 3.0Px + 0.8I + 2.0Py – 0.6Ps + 1.2A

Where: Qx = mil. Of lbs/yr.

Px = price of brand x
I = personal disposable income - $T/yr
Py = Price of Competitor, $/lb
Ps = Price of Sugar, $/lb
Variables that can be controlled : Price, Advertising Weighted Moving Average
Variables that cannot be controlled: Income (expected to WMA = Σ (recent n date values) (weights)
change) Σw

 Increase the price of coffee brand x by 5% MONTH DEMAND/SALE

 Increase advertising by 12% J 21
 Increase in income by 4% F 25
 Increase competitor by 7% M 29
 Decrease the price of sugar by 8% A 21
M 25

What would be the Qd next year?

Qx=2 (current year)
WMA = 29(3) + 25(2) + 21(1)
∆P ∆I
Qx = Qx+Qx (P) ΣP + ΣI + ⋯
Qx ( I ) 6
=2 + 2(0.05)-3 + 2(0.04)1 + 2(0.07)1.8 + 2(-0.08)-0.15 + =26
2(0.12)0.6
=2.2 million pounds

Moving Average Method – forecasting sales month-to-

month / demand for next month (4 MONTHS-USUAL)

MA = Σ (recent n date values)

N n=number of months

MONTH DEMAND/SALE
J 21
F 25
M 29
A 21
M 25

MA= 21+25+29+21
4
= 24