Are parameter estimates a b and c statistically significant

Reference no: EM13389642

The chief economist for Argus Corporation, a large appliance manufacturer, estimated the firm's short-run cost function for vacuum cleaners using an average variable cost function of the form

AVC = a + bQ + cQ2

where AVC dollars per vacuum cleaner and Q number of vacuum cleaners produced each month. Total fixed cost each month is $180,000. The following results were obtained:

DEPENDENT VARIABLE: AVC R-SQUARE F-RATIO P-VALUE ON F

OBSERVATIONS: 190 0.7360 39.428 0.001

VARIABLE PARAMETER STANDARD T-RATIO P-VALUE

Estimate Error

INTERCEPT                 194.93                  54.65             .512         0.0029

Q                                -0.0305              0.00789          23.866         0.0014

Q2                                 0.0000024        0.00000098     2.449          0.0262

a. Are the parameter estimates a, b, and c statistically significant at the 2 percent level of significance?

b. Do the results indicate that the average variable cost curve is U-shaped? How do you know?

c. If Argus Corporation produces 8,000 vacuum cleaners per month, what is the estimated average variable cost? Marginal cost? Total variable cost? Total cost?

d. Answer part c, assuming that Argus produces 10,000 vacuum cleaners monthly.

e. At what level of output will average variable cost be at a minimum? What is minimum average variable cost?

Reference no: EM13389642

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