Firm Chair Case Analysis

Group-6

Durga Prasad M105/13

Sourav Mukhobadhya M149/13
Vivek Prasad M079/13

Introduction:

Firm produces chairs of various types

Different price points observed
Total price, order quantity and order numbers given
Required: an appropriate price model through regression analysis
Both single and multiple regression analysis done
Analysis of anova of regression and statistics

Methodology-1:
To get a general idea, a scatter plot is developed of total price~total
quantity.

In order to graphically visualize the price point breaks and fall in the
marginal price per chair at certain order points, a scatter plot of the unit
price~quantity is also developed

TOTAL PRICE VS TOTAL QUANTITY

70000
y = 100.35x + 7779.9
R = 0.9677
60000

Total price

50000

40000

30000

20000

10000

100

200

300
quantity

400

500

600

Pricing Clusters
Quantity~Unit price

180
160
140
120

Per unit Price

Pricing Cluster formed between

0 to 200
200 to 400
400 to 600

100
80
60
40
20
0
0

100

200

300

Quantity

400

500

600

Methodology-2:

Therafter, having observed the distinct Price points and clustering of the
prices at quantities of 0-200,200-400 and 400+, appropriate regression
models are developed by adding and removing variables.

First, a simple regression model is developed with price as the dependent

variable and quantity as the independent variable.

The results are decent with an R2 of 96% and a significant X variable.

Regression: Total Price Vs. Quantity

Coefficients Standard Error

t Stat

P-value

Intercept

7779.936292

594.8722083 13.07833209 1.84701E-21

Quantity

100.3466275

2.063680806 48.62507188 1.22804E-60

Lower 95%

Upper 95% Lower 95.0% Upper 95.0%

6595.87278 8963.999804

6595.87278 8963.999804

96.23897363 104.4542814 96.23897363 104.4542814

70000

y = 100.35x + 7779.9
R = 0.9677

Regression
Statistics
Multiple R

0.98370116

R Square

0.967667972

Adjusted R Square

0.967258706

Standard Error

2114.867321

Total Price

60000
50000

40000
30000
20000
10000

Observations

81

0
0

100

200

300

Quantity

400

500

600

Methodology-3

However, given the pricing structure, a better R2 can be achieved through introduction of
appropriate variables that better proxy the price structure.
Thus, 2 categorical variables are introduced to represent the price points-X1 and X2.
For the quantity range 0-200,we code X1=1 and X2=0;
For the range 200-400, we code X1=0 and X2=1;
For 400 and beyond, X1=X2=0;
This helps build the 3 different ranges into the model and helps the regression analysis
identify the 3 ranges.

SUMMARY OUTPUT

The equation:
Price=-5614.22+124.37(Qty) + 9578.04(X1) + 7352.62(X2)

Regression Statistics
Multiple R
0.991716588
R Square
0.98350179
Adjusted R Square
0.982859003
Standard Error
1530.217804
Observations
81
ANOVA
df
Regression
Residual
Total

Intercept
Quantity
X1
X2

3
77
80

SS
10748195409
180300622.6
10928496031

MS
3582731803
2341566.528

F
1530.05766

Significance F
1.64883E-68

Coefficients
-5614.22863
124.3692262
9578.037003
7352.623921

Standard Error
1845.91644
3.820140557
1331.171652
867.8313803

t Stat
-3.041431621
32.55619116
7.195193037
8.472410756

P-value
0.003218079
9.04937E-47
3.54194E-10
1.24902E-12

Lower 95%
-9289.917854
116.7623545
6927.335599
5624.55087

Upper 95%
-1938.539406
131.9760979
12228.73841
9080.696971

Lower 95.0%
-9289.917854
116.7623545
6927.335599
5624.55087

Upper 95.0%
-1938.539406
131.9760979
12228.73841
9080.696971

Methodology-4:
However, to take the model forward, we now introduce two interaction
terms to check if there is any interaction between the variables-Qty and
X1/X2.

Two interaction variables,Int1 and int2 are introduced; int1=Qty*X1, and

int2=Qty*X2.

A regression is run again to check for adequacy.

SUMMARY OUTPUT
Regression Statistics
Multiple R
0.993763275
R Square
0.987565447
Adjusted R Square
0.986736477
Standard Error
1346.06074
Observations
81

The Equation: price=7269.24+96.9(Qty)8384.23(X1)5977.68(X2)+61.48(Int1)+29.034(Int2)

ANOVA
df
Regression
Residual
Total

Intercept
Quantity
X1
X2
int1
int2

5
75
80

SS
10792605068
135890963.6
10928496031

MS
2158521014
1811879.515

F
1191.315976

Significance F
6.30148E-70

Coefficients
7269.242492
96.908897
-8384.232606
-5977.686666
61.48098893
29.03424829

Standard Error
3685.545863
7.811732611
3974.602059
3864.148067
12.5488257
8.78659125

t Stat
1.972365224
12.40555736
-2.109452086
-1.54696108
4.89934201
3.304381353

P-value
0.052254636
7.49362E-20
0.038242585
0.126082129
5.39997E-06
0.001461329

Lower 95%
-72.74136067
81.34712764
-16302.04593
-13675.46435
36.48244622
11.53046093

Upper 95%
14611.22635
112.4706664
-466.4192832
1720.091022
86.47953165
46.53803564

Lower 95.0%
-72.74136067
81.34712764
-16302.04593
-13675.46435
36.48244622
11.53046093

Upper 95.0%
14611.22635
112.4706664
-466.4192832
1720.091022
86.47953165
46.53803564

 While the R2 value increases on introducing interaction variables , from

0.9828 to 0.9867, and thus explains variation better;

And the regression is also significant, thus rejection the null hypothesis;
But on analyzing the individual variable statistics, it is seen that X2 is
insignificant at the 95% CI,with p=0.126, >>0.05

This may be overlooked if we reduce the CI to 90%, and p=0.126 will be

nearly equal to 0.1

Thank You