MGAB03H3 Chapter 2: 2sol
14 Aug 2015
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[note about problem complexity: this homework problem was written with adequate instructions so that students should be able to perform the various regression analyses that are called for. Labor cost = ,194 + . 96 x number of chairs produced. However, the regression explains only about 59% of the variation in labor costs. Also, the degree of downward bias is higher for older data than for more recent data: here are a couple of months" data so that you can double-check your calculation of adjusted labor costs: Using the adjusted labor cost data, here are the regression results: Based on the regression results, the fixed cost and the variable cost per unit are each positive and statistically different from zero. Labor cost = ,736 + . 23 x number of chairs produced. This regression provides a more reasonable cost function than the previous version because it explains a higher proportion of the variation in labor costs (adjusted r-square of 0. 74).
