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

question 12

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 20 units, what is average cost?

• A) $160
• B) $200
• C) $280
• D) $340
• E) $360

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Definitions:

Shareholders

Individuals or entities that own shares in a corporation, giving them partial ownership and certain rights.

Minority Shareholder

A shareholder owning less than half of the total shares, and consequently having less influence over corporate decisions.

Decision-making

The cognitive process of choosing a particular course of action among several alternatives to produce a desired result.

Minority Shareholder

An investor who owns less than half of the total shares of a corporation, and therefore does not have control over the company's decisions.