A study describes operating costs for comparable manufacturing plants operating
ID: 3178486 • Letter: A
Question
A study describes operating costs for comparable manufacturing plants operating in 15 different U.S. met- ropolitan areas. From the costs obtained in the study, the following multiple regression equation was developed:
yˆ = 1.0 + 1.1x1 + 2.8x2, with yˆ = total operating cost, x1 = labor cost, and x2 = electric power cost. All costs are in millions of dollars and on an annual basis.
A) Interpret the y-intercept and the partial regression coefficients.
B) If labor costs $6 million and electric power costs $0.3 million, what is the estimated annual cost to operate the plant?
Explanation / Answer
(A) The y- intercept shows the average operating cost for manufacturing plants without including cost of labour and electric power, which is 1 million dollars in the given question.
the partial regression coefficient 1related to labour cost is 1.1 , which means that if there is increase of 1 unit in labour cost, it will prompts and increase of 1.1 unit in total operation cost.
the partial regression coefficient 2 related to labour cost is 2.8 , which means that if there is increase of 1 unit in labour cost, it will prompts and increase of 2.8 unit in total operation cost.
(B) Estimated annual operating cost of plant, if labor costs are $6 million and Electric power costs = $ 0.3 milllion
Y = 1.0 + 1.1 * 6 + 2.8 * 0.3 = 8.44 million
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