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.RAW 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^2 = .099.
(i) Interpret the coefficient on log(sales). In particular, if sales increases by 10%, what is the estimated percentage point change in rdintens? Is this an economically large effect?
(ii) 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.
(iii) Interpret the coefficient on profmarg. Is it economically large?
(iv) Does profmarg have a statistically significant effect on rdintens?