Question

A sporting goods store manager wants to forecast annual sneaker revenues based on the type of sport (running, tennis, or walking), color (red, blue, white, black, or violet) and its target audience (men or women). How many independent variables should the manager include in her multiple regression analysis

Answer 1

The manager should include 7 independent variables in her multiple regression analysis.

Explanation:

Lets consider sales revenue to bethe dependent variable and, type of sport, color, and target audience, the categorical variables represented with dummy variables. Just remeber that one fewer dummy variables than the number of options in a category must be used, so, type of sport should be represented by: 3 - 1 = 2 dummy variables

color should be represented by 5 - 1 = 4 dummy variables, and

target audience should be represented by 2 - 1 = 1 dummy variables

This totalizes: 2 + 4 + 1 =7 independent variables.