The variable rdintens is expenditure on research and development (R&D) as a percentage of sales. Sales are measured in millions of dollars. The variable profmarg is profts 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) + 0.50 profmarg
(1.369) (.216) (.46)
n=32, R²= .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 5% and 10% levels.
c) Interpret the coefficient on profmarg. Is it economically large?
d) Does profmarg have a statiscally significant effect on rdintens?