The manager of a gas station along an interstate highway has observed that gasoline sales generally increase each week over the summer months as more families travel by car on vacations. He also believes that sales are sensitive to fluctuations in the price of gasoline. He developed the following regression model:
Sales ($) = $59,407 + $509 (Week) + 16,463 (Price/gallon)
-Which one of the following statements is TRUE?
A) Sales decrease as a function of time.
B) A $0.10 increase in the price of gas reduces weekly sales by 1,646 gallons.
C) As the price of a gallon of gas increases, sales increase.
D) None of the above is true.

Question

Quizplus · Accepted Answer

The coefficient of price/gallon in the regression model is positive, indicating that as the price of gas increases, sales also increase. However, a $0.10 increase in price/gallon would result in a decrease in sales of $0.10 * 16,463 = $1,646. Choice A is incorrect because the coefficient of Week in the regression model is positive, indicating that sales generally increase each week over the summer months.

The Manager of a Gas Station Along an Interstate Highway