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

question 39

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:

$$\begin{array} { | c l l l l l | } \hline \text { DEPENDENT VARIABLE: } & \text { C } & \text { R-SQUARE } & \text { F-RATIO } & \text { P-VALUE ON F } \\\text { OBSERVATIONS: } & 28 & 0.7679 & 26.47 & 0.0001 & \\ \text { VARIABLE } & \begin{array} { l } \text { PARAMETER } \\\text { ESTIMATE }\end{array} & \begin{array} { l } \text { STANDARD } \\\text { ERROR }\end{array}& \text { T-RATIO } & \text { P-VALUE } \\\text { INTERCEPT }& 200 & 38.00 & 5.26 & 0.0001 \\\text { Q } & - 12.00 & 4.36 & - 2.75 & 0.0111 \\ \text { Z } & 0.50 & 0.16 & 3.13 & 0.0046 \\\hline\end{array}$$
-When output is 40 units, what is average cost?

• A) $200
• B) $280
• C) $360
• D) $480
• E) $520

---

Definitions:

Short-run Equilibrium

A state in which supply and demand are balanced, prices are stable, and there's no tendency for change in the short term.

Aggregate Supply

The comprehensive stock of goods and services intended for sale by firms within an economy throughout a certain duration.

Economy

An economy encompasses all the production, distribution, and consumption of goods and services within a particular geographic region. It involves activities related to wealth and resources.

Minimum Wage

The lowest legal wage that can be paid to most workers, set by government laws or regulations, intended to ensure a basic standard of living.