The European Engine Company (EEC) is a multi-national manufacturer of small gasoline and diesel motors. EEC has estimated the following cost experience for a new 3.5 hp engine over a sample of 122 observations:
COST = $8,500 + $32 OUTPUT
Predictor Coef Stdev t ratio
Constant 8,500 5,000 1.7
OUTPUT 32 8 4.0
SEE = $2,500 R2 = 75% = 74.8% F statistic = 360
where COST is the dependent Y variable and OUTPUT is the independent X-variable.
A. Fully interpret these simple regression results.
B. Describe this cost category as fixed or variable based upon the simple regression results described previously