Answer-first summary for fast verification
Answer: First quarter
## Explanation The intercept term β₀ represents the average value of sales for the **first quarter**. **Reasoning:** - The model includes dummy variables for Q2, Q3, and Q4 only - There is no dummy variable for Q1 - When all dummy variables equal 0 (D₂,ₜ = 0, D₃,ₜ = 0, D₄,ₜ = 0), this corresponds to the first quarter - Therefore, β₀ alone represents the average sales in Q1 **Interpretation of coefficients:** - β₀ = Average sales in Q1 - β₂ = Difference in average sales between Q2 and Q1 - β₃ = Difference in average sales between Q3 and Q1 - β₄ = Difference in average sales between Q4 and Q1 This is a standard dummy variable setup where the omitted category (Q1) becomes the reference group.
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Consider the following regression equation utilizing dummy variables for explaining quarterly SALES in terms of the quarter of their occurrence:
SALESₜ = β₀ + β₂D₂,ₜ + β₃D₃,ₜ + β₄D₄,ₜ + eₜ
where:
SALES = a quarterly observation of EPS
D₂,ₜ = 1 if period t is the second quarter, D₂,ₜ = 0 otherwise
D₃,ₜ = 1 if period t is the third quarter, D₃,ₜ = 0 otherwise
D₄,ₜ = 1 if period t is the fourth quarter, D₄,ₜ = 0 otherwise
The intercept term β₀ represents the average value of sales for the:
A
First quarter
B
Second quarter
C
Third quarter
D
Fourth quarter
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