Let R&D, Bââ + Bâââ Sales, + uââÂ, where R&D = research and development expenditure, Sales = sales. The results of the regression are as follows:
R&Di = -20.18 + 0.003 Salesi
se = (298.56) (0.002)
t = (-0.068) (2.04)
The residuals obtained are then regressed on Salesi, giving the following results:
u = -128442 + 4.11 Sales
se = (47223.6) (7.59)
t = (-0.29) (0.54)
(a) Interpret the result of equation (1) and equation (2).
(b) Based on the Park test, conclude whether heteroscedasticity exists in the error variance or not.