Question

A furniture company has opened a small plant that builds tables. Jill, the production manager, knows the fixed cost of the plant, F = $78 per day, and includes the cost of the building, tools, and equipment. Variable costs include labor, energy costs, and wood. Jill wants to know the cost function. She conducts an experiment in which she varies the daily production level over a 10-day period and observes the associated daily cost. The daily output levels assigned are 1, 2, 4, 5, 7, 8, 10, 12, 15, and 16. The associated total costs for these output levels are 125, 161, 181, 202, 207, 222, 230, 275, 390, and 535, respectively.

Use the Trendline tool in Excel to estimate a cost function by regressing cost on output. Try a linear specification (C = a + bq), a quadratic specification (C = a + bq + dq2), and a cubic specification (C = a + bq + dq2 + eq3). (Hint: To obtain quadratic and cubic cost specifications, select the polynomial option from the Trendline menu and set Order at 2 for the quadratic specification and at 3 for the cubic function.)

Generate the corresponding average cost data by dividing the known cost by output for each experimental output level.

	q	C	AC
	1	$125
	2	$161
	4	$181
	5	$202
	7	$207
	8	$222
	10	$230
	12	$275
	15	$390
	16	$535
	What value would you choose to use the Set Intercept option?
	It would make sense to use the Set Intercept option if the intercept is set at										.

Answer 1

Output[O]	1	2	4	5	7	8	10	12	15	16
C	125	161	181	202	207	222	230	275	390	535
AC[C/O]	125	80.5	45.25	40.4	29.57	27.75	23	22.91	26	33.44

Linear trendline

Quadratic trendline

Cubic trendline

Cubic detail best fits the line, thusly that will be recommended

Cost is plotted in the y pivot and cost at x hub, first the dissipate graph is embedded and afterward trendline is included with direct detail, polynomial of request 2 and 3.

It bodes well to utilize the set catch choice as it determines where will the bend cut the y pivot, as this is a creation work with fixed expense =78, the capture will be 78 i.e regardless of whether amount is 0, the cost will be 78.

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