Explore BrainMass

Develop a linear equation

See the attached file.

Not sure what is being asked for the second part.
Chapter 3, problem 3-41

High-Low Method
Manchester Foundry produced 45,000 tons of steel in March at a cost of £1,150,000. In April, the foundry produced 35,000 tons at a cost of £950,000. Using only these two data points, determine the cost function for Manchester.

Month Cost Production (in tons)

High : March £1,150,000 45,000

Low: April £950,000 35,000

Difference 200,000 10,000

Variable cost = (Change in costs)/(Change in production)
= 200,000/10,000 = 20

Fixed cost (High) X = £1,150,000 - 20*45000 = 1,150,000 - 900,000 = £250,000

Fixed cost (Low) X = £950,000 - 20*35000 = 250,000

Thus Cost function is

Y = 250,000 per month + (20* production in tons)

(a.) Develop a linear equation (model) using the high low and point slope method of linear model development.

(b.) How does the slope in part 'a' affect the marginal cost of this product? Use your model results and to support your answer to this question.

(c.) Next predict 'y' using the model in part 'a' when x = 75,000 tons. Be sure to show your work.


Solution Summary

The solution explains how to develop a linear equation using high low method