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A firm wants to study the relationship between sales and advertising expenditure. Which technique is appropriate?
Correct Answer: B — Correlation analysis
The correct answer is B: Correlation analysis.
Key Points:
Correlation analysis is a statistical technique used to determine the degree of relationship between two variables.
In this scenario, the firm wants to study the relationship between sales and advertising expenditure — two measurable variables.
It can reveal whether an increase in advertising expenditure leads to an increase in sales (positive correlation), a decrease (negative correlation), or no relationship (zero correlation).
Pearson's correlation coefficient is commonly used to quantify the strength and direction of the relationship.
Additional Information:
Index numbers: Track changes in economic variables over time (e.g., inflation); not suitable for analyzing the relationship between two specific variables.
Tabulation: Organizes data into rows and columns for presentation; does not reveal relationships between variables.
Classification: Groups data into categories; useful for organizing data but does not analyze relationships.