After estimating a regression of your firm's store sales and the number of local competitors as follows: Sales = 321,752 + 70.35 Number of Competitors. You are willing to believe you have a random sample of store locations, and a sufficiently large sample size. What is wrong with the following logic, "We need more competitors to enter the markets we're in, so that our sales will rise?"
A) The positive coefficient on number of competitors is not a causal estimate.
B) The positive coefficient on number of competitors isn't a consistent estimate.
C) The number of competitors might be measured with error.
D) You're making an active prediction.

Question

Quizplus · Accepted Answer

The positive coefficient on the number of competitors is not a causal estimate. Although there is a positive relationship between the number of competitors and sales, it does not necessarily mean that adding more competitors will lead to an increase in sales. There could be other factors affecting sales, such as the level of advertising or the quality of service, that are not captured in the regression model. Therefore, it is not safe to assume that increasing the number of competitors will always lead to an increase in sales.

After Estimating a Regression of Your Firm's Store Sales and the Number