SCENARIO 14-6 One of the Most Common Questions of Prospective House Buyers

question 238

Multiple Choice

SCENARIO 14-6
One of the most common questions of prospective house buyers pertains to the cost of heating in dollars (Y) . To provide its customers with information on that matter, a large real estate firm used the following 2 variables to predict heating costs: the daily minimum outside temperature in degrees of Fahrenheit ( X₁ ) and the amount of insulation in inches ( X ₂ ) . Given below is EXCEL output of the regression model.



Also SSR (X₁ | X₂) = 8343.3572 and SSR (X₂ | X₁) = 4199.2672
-Referring to Scenario 14-5,one company in the sample had sales of $21.439 billion (Sales = 21,439) .This company spent $300 million on capital and $700 million on wages.What is the residual (in millions of dollars) for this data point?

• A)790.69
• B)648.31
• C)-648.31
• D)-790.69

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Definitions:

Cost Functions

Mathematical relationships that express how a firm’s costs depend on the quantity of output it produces.

Economic Profits

The surplus or profits generated by a firm after accounting for both explicit and implicit costs.

Fixed Cost

Expenses that do not change with the level of output produced, such as rent or salaries.

Demand Curve

A graph displaying the relationship between the price of a good and the quantity demanded, typically showing that as the price decreases, the quantity demanded increases.