Scenario: Regression equations are created by modeling data, such as the following:
Profit = (Cost Per Item × Number of Items) – Constant Charges
In this equation, constant charges may be rent, salaries, or other fixed costs. This includes anything that you have to pay for periodically as a business owner. This value is negative because this cost must be paid each period and must be paid whether you make a sale or not.
Your company may wish to release a new e-reader device. Based on data collected from various sources, your company has come up with the following regression equation for the profit of the new e-reader:
Profit = $0.15 × number of e-readers sold – $28
Or, assuming x = the number of e-readers sold, this would be the same regression equation:
Profit = 0.15x – 28
In this case, the values are given in thousands (i.e., the cost of making an individual e-reader will be $150 [0.15 × 1,000], with $28,000 [28 * 1,000] in constant charges).
Answer the following questions based on the given regression equation:
1. Using the graphing program that you downloaded, graph the profit equation. Discuss the meaning of the x- and y-axis values on the graph. (Hint: Be sure to label the axis)
2. Discuss the meaning of the slope of the equation that you have just graphed. How is it related to the cost of each e-reader?
3. Based on the results of the graph and the profit equation provided, discuss the relationship between profits and number of e-readers produced. (Hint: Consider the slope and y-intercept.)
4. If the company does not sell a single e-reader, how much is lost? Mathematically, what is this value called in the equation?
5. If the company sells 5,000 e-readers, how much will the company make (or lose)?
6. If profit must equal 100 thousand, how many e-readers will your company need to sell? (Round up to the nearest e-reader.)
7. If your company is hoping to break even, how many e-readers will need to be sold to accomplish this? (Round up to the nearest e-reader.)Please submit your assignment.
Windows Based Computers: Download the graphing program from www.padowan.dk/graph. The instructions for using this program can be found in the Instructor’s Files of your Virtual Classroom.
Apple (Mac) Based Computers: Download the graphing program from http://www.geogebra.org/cms/.
(NOTE: You are free to use Excel as well if preferred).
Must have references noted, and must be in APA format