Cost Estimation

question 10

Essay

Cost Estimation. Natural Gas, Inc., has just completed a cost study of its natural gas production operation. By regressing total variable costs (in $000) per week on gas output, the following equation was estimated:
Here Q is natural gas production in thousand cubic feet (units) and the numbers in parentheses are the standard errors of the coefficients. The R² for the equation is 85%, and the standard error of the estimate is 50 for the weekly observations over a two-year period.

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Definitions:

Transactions Costs

Expenses incurred when buying or selling securities, which can include brokerage fees, commissions, and other charges.

Leverage

Utilizing borrowed funds to amplify the possible returns on an investment.

Portfolio's Beta

A measure of the overall volatility or risk of an investment portfolio in comparison to the market as a whole.

S&P500 Value

A measurement of the stock performance of 500 large companies listed on stock exchanges in the United States.