# Calculate the Functional Form of Average Variable Cost

Question

Precision Engineering department has collected data on its average costs of production for the past 12 months. The monthly fixed cost is \$4000 per month. The AVC and associated output data are presented below:

 Month Q AVC \$ Jan 70 375 Feb 58 540 Mar 160 450 Apr 120 255 May 130 138 Jun 120 150 Jul 10 450 Aug 35 350 Sep 80 60 Oct 110 70 Nov 100 90 Dec 190 153

Precision Engineering is a perfectly competitive firm. Based on the information above, explain if AVC suggests the functional form: AVC = a + bQ + cQ2. (Draw a scatter diagram of AVC on Y axis and Q on X axis. Fit the scatter diagram with a 2nd degree polynomial trend line.)

Summary

The question belongs to Statistics and it is about calculating whether or not the AVC or the Average Variable Cost of the firm is in a functional form: AVC = a + bQ + cQ2 and plot the same on a graph.

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