(a) Refer to Exercise. Based on historical information, the company believes that the type of industry that the customer belongs to influences web development time. Suppose that there are four industry types: manufacturing, banking, airlines, and health care. Discuss model formulation in this context and define the variables.
(b) What is the possible utility of this model relative to that formulated in Exercise?
(c) Explain what the coefficient of the variable associated with the banking industry means.
(d) Can you comment on the value of Ra2 for the model here versus that formulated in a Exercise? What about comments on R2?
Exercise
An information technology company that specializes in website development is interested in modeling development time as a function of the contract cost, number of available developers, and number of projects undertaken.
(a) Write down the equation of the model and explain the meaning of the model parameters in the context of the problem.
(b) What signs do you expect of the model parameters? Explain.
(c) Do you suspect multicollinearity (strong relationship) among the independent variables? If so, among which variables? What measures might you take to reduce the impact of multicollinearity?
(d) Suppose you had built a model to predict development time based only on the contract cost. What might be some disadvantages of this model?