Use a computer regression package or Excel to work this computer exercise. Palm
ID: 1255305 • Letter: U
Question
Use a computer regression package or Excel to work this computer exercise.Palm Products Company has collected data on its average variable costs of
production for the past 12 months. The costs have been adjusted for inflation by
deflating with an appropriate price index. The AVC and associated output data are
presented below:
obs Q AVC obs Q AVC
1 22 $208 7 45 $172
2 31 202 8 45 158
3 31 206 9 45 173
4 25 214 10 62 170
5 41 174 11 62 152
6 41 203 12 70 175
a. Run the appropriate regression to estimate the parameters for the empirical
cost function
2
AVC = a + bQ + cQ .
b. Using a 10 percent significance level, discuss suitability of the parameter
estimates obtained in part a. Consider both the algebraic signs and statistical
significance of the parameter estimates.
c. Present the estimated average variable cost, total variable cost, and short-run
marginal cost functions.
d. At what level of output does AVC reach its minimum value? What is the
minimum value of AVC at its minimum?
Qmin = ______ AVCmin = ________
e. Compute AVC and SMC when Palm Products produces 20 units of output:
AVCQ=20 = _______
SMCQ=20 = _______
Is AVC rising or falling when Palm produces 20 units? Explain.
f. At what level of output does SMC equal AVC? How did you get this answer?
Explanation / Answer
a) Regression Analysis R
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