A regression analysis of company profits and the amount of money the company spent on advertising produced a R2 = 0.72. Which of these is true?
I. This model can correctly predict the profit for 72% of companies.
II. 72% of the variance in company profit can be accounted for by the model.
III. On average, companies spend about 72% of their profits on advertising.
A) None
B) I only
C) II only
D) III only
E) I and III

Question

Quizplus · Accepted Answer

R2 is the proportion of variance in the dependent variable (profit) that can be explained by the independent variable (advertising spent) in the model. Therefore, option II is true. Option I is incorrect because R2 does not mean that the model can correctly predict the profit for 72% of companies. Option III is also incorrect as R2 does not provide information about how much companies spend on advertising relative to their profits.

A Regression Analysis of Company Profits and the Amount of Money