Activity I – A manager claims that increases in advertising expenditure will surely raise the firm’s profits, citing his sense that people find the firm’s ads entertaining.

1. Sketch how you might refute this claim using:

a. A theoretical argument

b. Data

2. Why might the refutation using data be more convincing?

Activity II – A grocery store manager is interested in the data-generating process for her store’s weekly soda sales. She believes factors impacting these sales include price, product placement, and whether the week contains a holiday. Write out a formal representation of the data-generation process for weekly soda sales that incorporates these and additional factors.

Activity III – Access the dataset Sales and Costs.xlsx (See the attached) and answer the following questions.

1. Calculate these descriptive statistics.

a. Mean of sales

b. Variance of materials costs

c. Covariance of labor costs and materials costs

d. Mean of labor costs

e. Total sales

2. Calculate at least two more descriptive statistics for this dataset.

Activity IV – Suppose you receive an e-mail from a stock broker who claims to be able to accurately predict whether any given stock will rise or fall in price during the subsequent month. To “prove” her claim, she makes a prediction about performance (higher price or lower price) for ten stocks over the next month. You are skeptical of the broker’s claim, and assume she simply guesses which stocks will improve or worsen in price over any given month. Put another way, you assume she has a 50% chance of being correct in her prediction for any given stock. Based on this assumption, you derive the following probabilities concerning her ten picks:

Number of correct picks

0

1

2

3

4

5

6

7

8

9

10

Probability

0.001

0.01

0.044

0.117

0.205

0.246

0.205

0.117

0.044

0.01

0.001

1. What is the empirically testable conclusion resulting from your deductive reasoning?

2. How could you test your empirically testable conclusion using a data sample?

3. Outline the inductive and deductive reasoning you could use to evaluate whether or not the broker is simply guessing in her stock picks