So, here's the deal. I'm in a bit of a pickle here :shakehead

I'm currently struggling with a take-home exam where I'm having trouble figuring out one question regarding interaction variables and dummy variables.

The assignment concerns sales forecast for a medical company in the UK, where I have come up with the regression to estimate sales forecast:

Sales = b0 + b1(Advertising) + b2(Bonus) + b3(Compet) + b4(SOUTH)

Where:

Advertising = Amount spent on advertising (in units of £1000).

Bonus = Total amount of bonuses paid (in unites of £100).

Compet: The largest competitor's sales in the territory (in units of £1000).

SUOTH: Dummy variable that is coded 1 if territory is in Southern England, and 0 otherwise.

**Now, the exact question I'm struggling with is this:**

*"Mr X thinks the impact of competitor's sales may only be significant in territories in Southern England. Explain the steps you would follow to test this belief"*

I have personally come up with the following model in order to answer the question:

Sales = b0 + b1(Advertising) + b2(Bonus) + b3(Compet) + b4(SOUTH)D + b5(COMPET*SUOTH)D

Where D indicates dummy variables.

With the new b5 parameter, I should be able to conduct hypothesis tests in order to determine whether competitors sales is only significant in the Southern territories, and not in other territories.

However, several of my classmates have come up with different suggestions, and we are all a bit unsure here.

How would you approach this question?