Question

You collect the following production data for your firm:

Q	L
253	2
1,376	6
498	3
66	1
1,900	9
1,066	5
1,727	7
815	4
2,201	11
2,300	10

Which functional form (linear, quadratic, cubic) is most suitable to your data? Construct a scatter diagram but be sure to just do the dots, don’t include the lines that connect them. Then, play around with the trendline feature and include what you consider to be the best trendline.

Using OLS, estimate the firm’s short-run production function. Comment on the strength of the regression results.

Calculate the Q

, AP, and MP for L=8

workers.

At 8 workers, is MC rising or falling, and how do you know?

Answer 1

let's use excel to construct scatter plot:

Step 1) First enter the given dataset in excel columns

step 2) Select both the column and then click on Insert >>>Scatter >>>First image

See the following image

Then we get the following output:

From the above output the equation of linear line is best .

Next, right click on any point on the scatter plot and select trendline.and select Linear and then check the bellow two checkbox.

Look the following image:

Then click on OK so we get the following output

Next do the same procedure, but select polynomial instead of Linear

So we get the following output

Since the R² of quadratic equation is more than the linear equation so the best fitted equation is on the second graph:

Plug x = 8 in the above equation we get :

Since the slope of the linear line is positive so we conclude that MC is rising with workers .