Chapter 14, Problem 73CR

This exercise requires the use of a statistical software package. The article “Entry and Profitability in a Rate-Free Savings and Loan Market” (Quarterly Review of Economics and Business [1978]: 87–95) gave the accompanying data on y = Profit margin of savings and loan companies in a given year, x₁ = Net revenues in that year, and x₂ = Number of savings and loan branch offices.

1. a. Fit a multiple regression model using both independent variables.
2. b. Use the F test to determine whether the model provides useful information for predicting profit margin.
3. c. Interpret the values of R² and s_e.
4. d. Would a regression model using a single independent variable (x₁ alone or x₂ alone) have sufficed? Explain.
5. e. Plot the (x₁, x₂) pairs. Does the plot indicate any sample observation that may have been highly influential in estimating the model coefficients? Explain. Do you see any evidence of multicollinearity? Explain.