McDuell_Chapter_6_Problem_7_2Complete

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Problem 7-2 $78 a) b) q C AC 1 $125 $125 2 $161 $81 4 $181 $45 5 $202 $40 7 $207 $30 8 $222 $28 10 $230 $23 12 $275 $23 15 $390 $26 16 $535 $33 What value would you choose to use the Set Intercept option? It would make sense to use the Set Intercept option if the Use a cell reference or a single formula where appropriate in order to paste values or type values, as you will not receive full credit for your A furniture company has opened a small plant that builds tables. Jill, the p cost of the plant, F = $78 per day, and includes the cost of the building, to include labor, energy costs, and wood. Jill wants to know the cost function which she varies the daily production level over a 10-day period and obser daily output levels assigned are 1, 2, 4, 5, 7, 8, 10, 12, 15, and 16. The asso levels are 125, 161, 181, 202, 207, 222, 230, 275, 390, and 535, respective Fixed cost ( F ) Use the Trendline tool in Excel to estimate a cost function by reg specification ( C = a + bq ), a quadratic specification ( C = a + bq a + bq + dq 2 + eq 3 ). ( Hint : To obtain quadratic and cubic cost sp option from the Trendline menu and set Order at 2 for the quadra function.) Generate the corresponding average cost data by dividing the kno experimental output level.

Based on the plotted regressions, which specification would you Jill should choose a cubic Use the Trendline tool to estimate an average cost curve. Determine which specification provides the best estimate of the a A cubic specification provides the best estimate of t specification as its R 2 is the 0 2 4 6 8 10 12 14 16 $0 $100 $200 $300 $400 $500 $600 f(x) = 17.4389140271493 x + 125 R² = 0.901101743767376 f(x) = 1.23327022679118 x² + 1.7412255748254 x + 125 R² = 0.95754081053929 f(x) = 0.266267490317444 x³ − 4.69856527287168 x² + 30.7707158758971 x + R² = 0.988216992089675 Estimation of a Cost Function Output per period (q) Cost per period ($) 0 2 4 6 8 10 12 14 16 1 $0 $100 $200 $300 $400 $500 $600 f(x) = 21.2786885245902 x + 82.5704918032787 R² = 0.818268043245907 f(x) = 1.75309070102127 x² − 8.75376692733167 x + 167.85691744837 R² = 0.921570052014851 f(x) = 0.37506212912 x³ − 7.72978421564 x² + 54.8975598771 x + 74.912537959 R² = 0.983670534625846 Estimation of an Average Cost Function Output per period (q) Average Cost per period ($)

e intercept is set at 125 . o receive full credit. Do not copy and answers. production manager, knows the fixed ools, and equipment. Variable costs n. She conducts an experiment in rves the associated daily cost. The ociated total costs for these output ely. gressing cost on output. Try a linear + dq 2 ), and a cubic specification ( C = ecifications, select the polynomial atic specification and at 3 for the cubic own cost by output for each

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recommend that Jill use? largest . average cost function. the average cost function. 18 + 125 18 73 92

Steps to P Step 1 2 3 Project D In this pro

4 5 6 7 8

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9 10 11

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Perform: Instructions Description: oblem, you will estimate a cost function by regressing cost on output and recommend a specification. Use a cell reference or a single formula where appropriate in order to receive full credit. Do not copy answers. Start Excel. In cell L23 , by using a cell reference, determine the value at which the intercept should be set. In cells C25-J25 , insert a Scatter Chart for estimating a cost function. Inserting a Chart On the Insert tab, in the Charts group, click the arrow next to Insert Scatter (X,Y) or Bubble Chart an Selecting Data Series Then in Select Data Source window, delete any series created automatically. Add new series for the cost function curve using cells C11:C20 for the X values and cells D11:D20 Edit Chart Elements Select design Style 1 for the chart. Go to the Add Chart Elements dropdown list in the Design tab of Output per period (q) as the title for the horizontal axis and Cost per period ($) as the title for the Chart Position Set the chart height and width so the entire chart fits within cells C25-J25 .

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Add a linear trendline to the data on the chart. Adding Linear Trendline Select any point on the chart and right click on it. Select the Add Trendline. In Trendline Options wi Trendline Options In Trendline Options window check the "Set Intercept", “Display equation on chart”, and “Display R L23 . You can grab the added equation and R-squared value and drag it to any place on the chart so t Edit Linear Trendline Double click on linear trendline. In Format Trendline, click Fill & Line. Select Blue color and choos Add a second-order polynomial trendline to the data on the chart. Adding Polynomial Trendline Select any point on the chart and right click on it. Select the Add Trendline. In Trendline Options wi Trendline Options In Trendline Options window check the "Set Intercept", “Display equation on chart”, and “Display R L23 . You can grab the added equation and R-squared value and drag it to any place on the chart so t Edit Polynomial Trendline Double click on polynomial trendline. In Format Trendline, click Fill & Line. Select Green color an Add a third-order polynomial trendline to the data on the chart. Adding Polynomial Trendline Select any point on the chart and right click on it. Select the Add Trendline. In Trendline Options wi Trendline Options In Trendline Options window check the "Set Intercept", “Display equation on chart”, and “Display R L23 . You can grab the added equation and R-squared value and drag it to any place on the chart so t Edit Polynomial Trendline Double click on polynomial trendline. In Format Trendline, click Fill & Line. Select Red color and c In cells E28 and J28 , determine which specification should be chosen and why. In cell E11 , by using cell references, calculate the average cost for the output level in cell C11 . Copy

In cells C32-J32 , insert a Scatter Chart for estimating an average cost function. Inserting a Chart On the Insert tab, in the Charts group, click the arrow next to Insert Scatter (X,Y) or Bubble Chart an Selecting Data Series Then in Select Data Source window, delete any series created automatically. Add new series for the average cost function curve using cells C11:C20 for the X values and cells E Edit Chart Elements Select design Style 1 for the chart. Go to the Add Chart Elements dropdown list in the Design tab of title. Add Output per period (q) as the title for the horizontal axis and Average Cost per period ($ Chart Position Set the chart height and width so the entire chart fits within cells C32-J32 . Add a linear trendline to the data on the chart. Adding Linear Trendline Select any point on the chart and right click on it. Select the Add Trendline. In Trendline Options wi Trendline Options In Trendline Options window check the “Display equation on chart” and “Display R-squared value o drag it to any place on the chart so that it is more visible to read. Edit Linear Trendline Double click on linear trendline. In Format Trendline, click Fill & Line. Select Blue color and choos Add a second-order polynomial trendline to the data on the chart. Adding Polynomial Trendline Select any point on the chart and right click on it. Select the Add Trendline. In Trendline Options wi Trendline Options In Trendline Options window check the “Display equation on chart” and “Display R-squared value o drag it to any place on the chart so that it is more visible to read. Edit Polynomial Trendline Double click on polynomial trendline. In Format Trendline, click Fill & Line. Select Light Green co

Save the workbook. Close the workbook and then exit Excel. Submit the workbook as directed. Add a third-order polynomial trendline to the data on the chart. Adding Polynomial Trendline Select any point on the chart and right click on it. Select the Add Trendline. In Trendline Options wi Trendline Options In Trendline Options window check the “Display equation on chart” and “Display R-squared value o drag it to any place on the chart so that it is more visible to read. Edit Polynomial Trendline Double click on polynomial trendline. In Format Trendline, click Fill & Line. Select Orange color a In cell D35 , determine which specification provides the best estimate of the average cost function.

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