MULTIPLE REGRESSION Because price is not the only factor that affects sales, it is natural to add
other explanatory variables to the right-hand side of the regression equation. Suppose the airline has
gathered data on its competitor’s average price and regional income over the same four-year period. In
management’s view, these factors may strongly affect demand. Table 4.4 lists the complete data set.
Management would like to use these data to estimate a multiple-regression equation of the form
Q = a + bP +cP° +dY.
In this equation, quantity depends on own price (P), competitor’s price (P°), and income (Y). Now the
OLS regression method computes four coefficients: the constant term and a coefficient for each of the
three explanatory variables. As before, the objective is to find coefficients that will minimize SSE. The
