Question

Let’s return to an example with one dummy variable to make sure we understand how to interpret a dummy variable coefficient in the context of a multiple regression model. Suppose you want to predict sneaker sales on the basis of advertising expenditures and sneaker color—red or blue. You create one dummy variable for the sneaker color (Red=1 for red sneakers and Red=0 for blue sneakers) and run the regression on data collected over ten years using the dummy variable and advertising expenditures as your independent variables. The equation you obtain is: How would you interpret the regression model? How would you interpret the coefficient for red sneakers?\

Answer 1

Answer:

Let's return to an example with one dummy variable to make sure we

understand how to interpret a dummy variable's coefficient in the context of a multiple regression model. Suppose you want to predict sneaker sales on the basis of advertising expenditures and sneaker color—red or blue. You create one dummy variable for the sneaker color (Red=1 for red sneakers and Red=0 for blue sneakers) and run the regression on data collected over ten years using the dummy variable and advertising expenditures as your independent variables. The equation you obtain is:

S⁢a⁢l⁢e⁢s=−631,085+533,024⁢(R⁢e⁢d)+50.5⁢(A⁢d⁢v⁢e⁢r⁢t⁢i⁢s⁢i⁢n⁢g)