Palm Products Company has collected data on its average variable cost of production for the past 12 months. The costs have been adjusted for inflation by delating with an appropriate price index. The AVC and associated output data are presented below.

Please click here to download the data set necessary to answer the questions that follow.

obs Q AVC 1 22 $208 2 31 $202 3 31 $206 4 25 $214 5 41 $174 6 41 $203 7 45 $172 8 45 $158 9 45 $173 10 62 $170 11 62 $152 12 70 $175 Q 1

Question 1

Run the appropriate regression to estimate the parameters for the empirical cost function, AVC = a + bQ + cQ, and report the parameter estimate for a.

Answer:

Q 2

Question 2

Run the appropriate regression to estimate the parameters for the empirical cost function, AVC = a + bQ + cQ, and report the parameter estimate for b.

Answer:

Q 3

Question 3

Run the appropriate regression to estimate the parameters for the empirical cost function, AVC = a + bQ + cQ, and report the parameter estimate for c.

Answer:

The table below provides results from the following regression: AVC = a + bQ + cQ. Please use this information to answer the questions that follow.

Q 4

Question 4

At the 5% level of significance, indicate whether the coefficient estimate for the intercept is statistically significant.

Select one:

a. Yes

b. No

Q 5

Question 5

At the 5% level of significance, indicate whether the coefficient estimate for Q is statistically significant.

Select one:

a. Yes

b. No

Q 6

Question 6

At the 5% level of significance, indicate whether the coefficient estimate for Q^2 is statistically significant.

Select one:

a. Yes

b. No

Q 7

Question 7

Is the algebraic sign on the coefficient estimate for the intercept consistent with economic theory?

Select one:

a. Yes

b. No

Q 8

Question 8

Is the algebraic sign on the coefficient estimate for Q consistent with economic theory?

Select one:

a. Yes

b. No

Q 9

Question 9

Is the algebraic sign on the coefficient estimate for Q^2 consistent with economic theory?

Select one:

a. Yes

b. No

Q 10

Question 10

Compute AVC when Palm Products produces 25 units of output: AVC(Q=25) = .

Q 11

Question 11

Is AVC rising or falling when Palm Products produces 25 units?

Select one:

a. Rising

b. Falling

Sarah Fleming, the owner of Serious Business Painting, leases a truck for $900 per month. This truck lease is ironclad: she must pay for all 12 months and cannot sublease to anyone else. Sarah also leases office space for $1,200 per month for the next 12 months, but she can terminate this lease at any point without penalty. Both payments must be made at the beginning of the month. She must also purchase paint and supplies, which cost her $6 per square foot. Sarah must also pay her workers, which cost $4 per square foot. Sarah previously earned a salary of $2,750 per month working for another painting company, which told Sarah she can return at any time.

Q 12

Question 12

Calculate monthly fixed costs for Serious Business Painting in the month of March: $.

Q 13

Question 13

Calculate monthly quasifixed costs for Serious Business Painting in the month of March: $.

Q 14

Question 14

Calculate monthly variable costs for Serious Business Painting in the month of March:per square foot. (Enter the numerals only.)

Q 15

Question 15

Should Serious Business Painting continue to operate if it is hired to paint an average of $1,000 square feet per month and is paid $11 per square foot? Explain.