The variable rdintens is expenditures on research and development (R&D) as a percentage of sales. Sales are measured in millions of dollars. The variable profmarg is profits as a percentage of sales. Using the data in RDCHEM for 32 firms in the chemical industry, the following equation is estimated: rdintens = .472 + .321 log(sales) + .050 profmarg (1.369) (.216) (.046) n = 32, R? = .099. (a) Interpret the coefficient on log(sales). In particular, if sales increase by 10%, what is the estimated percentage point change in rdintens? Is this an economically large effect? (b) Test the hypothesis that R&D intensity does not change with sales against the alternative that it does increase with sales. Do the test at the 5% and 10% levels. (c) Interpret the coefficient on profmarg. Is it economically large? (d) Does profmarg have a statistically significant effect on rdintens?

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