COMPUTER EXERCISE

Use a computer regression package or Excel to work this computer exercise. Palm Products Company has collected data on its average variable costs ofproduction for the past 12 months. The costs have been adjusted for inflation by deflating with an appropriate price index. The AVC and associated output data arepresented below: (See picture attached for chart)

a. Run the appropriate regression to estimate the parameters for the empirical cost functionAVC = a + bQ + cQ^2 .

b. Using a 10 percent significance level, discuss suitability of the parameterestimates obtained in part a. Consider both the algebraic signs and statisticalsignificance of the parameter estimates.

c. Present the estimated average variable cost, total variable cost, and short-runmarginal cost functions.

d. At what level of output does AVC reach its minimum value? What is theminimum value of AVC at its minimum?Qmin = __ AVCmin = ___

e. Compute AVC and SMC when Palm Products produces 20 units of output:

AVCQ=20 = _______

SMCQ=20 = _______

Is AVC rising or falling when Palm produces 20 units? Explain.

f. At what level of output does SMC equal AVC? How did you get this answer?