If a company wanted to see what was impacting profits, on what variables might it collect information within the company that should be added to the regression? Why would those variables be included?
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The answer to this will really depend to a great extent on the particular issues that are facing the company. Different companies will have different factors that might be impacting their productivity and their profits. Let us look at some factors that might be important:
The price of your product(s). Different products have different price elasticity of demand. It is not always possible to know ahead of time what a given product’s elasticity is. You could put price in as a variable and see how much of an impact changes in price have on profits.
- Many firms spend significant amounts of money on marketing. By using this as a variable you could see if different levels of spending are leading to changes in profits. If you have the data, you could also look at the impact of different marketing mixes.
Competitors’ prices. Is your firm losing profit because competitors are lowering prices?
Market share. Is your firm losing profit because it is losing market share?
Amount of inventory. Is profitability hurt by spending too much on keeping inventory? Is it being hurt because you do not keep enough inventory and experience delays?
Number of worker hours. Do different levels of employee hours have an impact on profits?
All of these are factors that could be operationalized and put into a regression to try to determine what variables are impacting a firm’s profits.
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