Question: The chief economist for Argus Corporation a large appliance manufacturer

The chief economist for Argus Corporation, a large appliance manufacturer, estimated the firm’s short-run cost function for vacuum cleaners using an average variable cost function of the form
AVC = a + bQ + cQ2
where AVC = dollars per vacuum cleaner and Q = number of vacuum cleaners produced each month. Total fixed cost each month is $180,000. The following results were obtained:

a. Are the estimates ˆa, ˆb, and ˆc statistically significant at the 2 percent level of significance?
b. Do the results indicate that the average variable cost curve is ∪-shaped? How do you know?
c. f Argus Corporation produces 8,000 vacuum cleaners per month, what is the estimated average variable cost? Marginal cost? Total variable cost? Total cost?
d. Answer part c, assuming that Argus produces 10,000 vacuum cleaners monthly.
e. At what level of output will average variable cost be at a minimum? What is minimum average variablecost?
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  • CreatedNovember 18, 2014
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