I am trying to create a regression model for this question. The question gives me a dependent variable Sales ($ thousands), 2 independent variables: Influencer type (macro or nano) and Social Media ad expense ($ thousands). It states "manager believes that Macro influencers provide a greater return to sales per advertisement dollar spent" with the hint that I need to create a new independent variable for this model. I have changed the influencer type to dummy values (Macro =1, Nano =0) and know how to generate the model on Excel, but I just don't understand what is the new independent variable that I need to create? Any help is much appreciated!! !!
1 Answers
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This question is not about Excel, it's just statistics.
The coefficient of the dummy variable will only tell you about the baseline sales are conditional on the type of influencer. If you want "return to sales per advertisement dollar spent", you should interact the two variables. That is, your model should look like this:
y = a + b1x1 + b2x2 + b3x1x2 + e
where y = Sales ($ thousands), x1 = Dummy influencer (Macro =1, Nano =0), x2 = Social Media ad expense ($ thousands), e = error term.
Your coefficient of interest would then be b3. If b3^>0 and statistically significant, you can say that the manager's belief is supported by the data.
