A Manager Wishes to Estimate an Average Cost Equation of the Following

question 34

Multiple Choice

A manager wishes to estimate an average cost equation of the following form:

where Q is the level of output. Letting Z = Q² and using least-squares estimation, the manager obtains the following computer output:

$$\begin{array} { | c l l l l l | } \hline \text { DEPENDENT VARIABLE: } & \text { C } & \text { R-SQUARE } & \text { F-RATIO } & \text { P-VALUE ON F } \\\text { OBSERVATIONS: } & 28 & 0.7679 & 26.47 & 0.0001 & \\ \text { VARIABLE } & \begin{array} { l } \text { PARAMETER } \\\text { ESTIMATE }\end{array} & \begin{array} { l } \text { STANDARD } \\\text { ERROR }\end{array}& \text { T-RATIO } & \text { P-VALUE } \\\text { INTERCEPT }& 200 & 38.00 & 5.26 & 0.0001 \\\text { Q } & - 12.00 & 4.36 & - 2.75 & 0.0111 \\ \text { Z } & 0.50 & 0.16 & 3.13 & 0.0046 \\\hline\end{array}$$
-Which of the parameter estimates are statistically significant at the 1% significance level?

• A) All the parameter estimates are statistically significant.
• B) All parameter estimates except \(\hat { b }\) are statistically significant.
• C) \(\hat { a }\) is not statistically significant, but all the rest of the parameter estimates are significant.
• D) \(\hat { c }\) is not statistically significant, but all the rest of the parameter estimates are significant.

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Definitions:

Formula

A mathematical relationship or rule expressed in symbols, often used to solve problems or to define scientific laws and principles.

Market Value

The existing rate at which a service or asset might be sold or acquired in the market.

Interest Rate

The share of a loan attributed as interest to the borrower, commonly expressed as an annual rate of the outstanding loan amount.

Present Discounted Value

The current value of a future sum of money or stream of cash flows given a specified rate of return.