Consider estimation of a short-run average variable cost function of the form Us

Question

Consider estimation of a short-run average variable cost function of the form Using time-series data, the estimation procedure produces the following computer output: a. Of the three parameter estimates a, b, and c, list the estimates that are statistically significant at the 5 percent level:_____ List the estimates that are significant at the 10 percent level: _____ b. Average variable cost reaches its minimum level at _____ units of output. At its minimum point, average variable cost is _____. c. The estimated marginal cost function is SMC = _____ d. The estimated average variable cost function is AVC = _____ e. When output is 6,000 units, marginal cost is _____. f. When output is 6,000 units, average variable cost is _____.

Explanation / Answer

At 5 percent level, we find p-values which are less than 0.05 to see which values are significant.

They are a &c

A 10 percent level, a,b,c are all significant.

B ) Differentiatiating the equation wrt Q , we get b+ 2Qc = 0 or Q= -b/2c =- 0.0120/0.0006= 20 At min point, AVC = 75 - 0.0120*20 + 0.0006*20*20 = 75

C)SMC =Differentiation of AVC - b+2Qc = -0.0120+2*q*0.0006

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