1. Exercise 9.1 A study of 86 savings and loan associations in six northwestern states yielded the following cost function. C 2.38 (3.33) 0.006153Q (3.08) 0.000005359Q² (3.16) 19.2X₁ (2.96) where C = average operating expense ratio, expressed as a percentage and defined as total operating expense ($ million) divided by total assets ($ million) times 100 percent. Q = output; measured by total assets ($ million) X₁ = ratio of the number of branches to total assets ($ million) Note: The number in parentheses below each coefficient is its respective t-statistic. Which of the variable(s) is (are) statistically significant in explaining variations in the average operating expense ratio? (Hint: £0.025,70 = 1.99.) Check all that apply. Q2 What type of average cost-output relationship is suggested by these statistical results? ○ Cubic Linear Quadratic Based on these results, what can we conclude about the existence of economies or diseconomies of scale in savings and loan associations in the Northwest? ○ Economies of scale at all output levels Diseconomies of scale at all output levels Economies of scale at lower output levels and diseconomies of scale at higher output levels O Diseconomies of scale at lower output levels and economies of scale at higher output levels
1. Exercise 9.1 A study of 86 savings and loan associations in six northwestern states yielded the following cost function. C 2.38 (3.33) 0.006153Q (3.08) 0.000005359Q² (3.16) 19.2X₁ (2.96) where C = average operating expense ratio, expressed as a percentage and defined as total operating expense ($ million) divided by total assets ($ million) times 100 percent. Q = output; measured by total assets ($ million) X₁ = ratio of the number of branches to total assets ($ million) Note: The number in parentheses below each coefficient is its respective t-statistic. Which of the variable(s) is (are) statistically significant in explaining variations in the average operating expense ratio? (Hint: £0.025,70 = 1.99.) Check all that apply. Q2 What type of average cost-output relationship is suggested by these statistical results? ○ Cubic Linear Quadratic Based on these results, what can we conclude about the existence of economies or diseconomies of scale in savings and loan associations in the Northwest? ○ Economies of scale at all output levels Diseconomies of scale at all output levels Economies of scale at lower output levels and diseconomies of scale at higher output levels O Diseconomies of scale at lower output levels and economies of scale at higher output levels
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter21: Production And Costs
Section21.4: Costs Of Production: Total, Average, Marginal
Problem 1ST
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Transcribed Image Text:1. Exercise 9.1
A study of 86 savings and loan associations in six northwestern states yielded the following cost function.
C
2.38
(3.33)
0.006153Q
(3.08)
0.000005359Q²
(3.16)
19.2X₁
(2.96)
where C = average operating expense ratio, expressed as a percentage and defined as total operating expense ($ million) divided by total assets ($
million) times 100 percent.
Q = output; measured by total assets ($ million)
X₁ = ratio of the number of branches to total assets ($ million)
Note: The number in parentheses below each coefficient is its respective t-statistic.
Which of the variable(s) is (are) statistically significant in explaining variations in the average operating expense ratio? (Hint: £0.025,70 = 1.99.) Check
all that apply.
Q2
What type of average cost-output relationship is suggested by these statistical results?
○ Cubic
Linear
Quadratic
Based on these results, what can we conclude about the existence of economies or diseconomies of scale in savings and loan associations in the
Northwest?
○ Economies of scale at all output levels
Diseconomies of scale at all output levels
Economies of scale at lower output levels and diseconomies of scale at higher output levels
O Diseconomies of scale at lower output levels and economies of scale at higher output levels
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