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# Using least squares method for calculating costs

Congratulations! You have just been promoted to a new position at the Tootsie Roll Company. In your new position, you have been asked by the accounting department to provide them with some cost data. The basis for your report is a table that was begun by your predecessor. Your task is to fill in the missing values in the table below:

1 2 3 4 5 6 7 8
Output
(bags)
FC
VC TC
(FC+VC)
MC AFC
(FC/Q) AVC
(VC/Q) ATC
(TC/Q)
4 \$50 \$50
5 50 60
10 50 100
11 50 106
17 50 150
18 50 157
21 50 182
22 50 200
27 50 310
28 50 340
31 50 410

2. Is a technically efficient method of producing always an economically efficient method of production? Why or why not? .

3. Explain how each of the following events affects the equilibrium wage and the equilibrium quantity of labor (assume all else is constant with each event). Be sure to explain whether demand for or supply of labor has changed.

(1) The price of output a firm produces rises.
(2) A leisure-hour provides greater marginal benefit.
(3) The marginal tax rate rises.
(4) New immigration laws restrict the hiring of illegal workers.
(5) A reduction in welfare benefits.
(6) The cost of machines falls (labor and machines are substitutes).
(7) Technology makes labor more productive.
(8) The industry becomes more monopolistic.
(9) The price of the product a firm produced falls.

4. Mangy Mutt Modifiers (3M) grooms dogs. 3M has a fixed capital stock, and uses only one variable input, labor. Additionally, 3M sells its output and buys its labor under competitive market conditions. Using the information provided, answer the questions that follow.

UNITS OF TOTAL DOGS MARGINAL PHYSICAL MARGINAL REVENUE
LABOR GROOMED PRODUCT OF LABOR PRODUCT OF LABOR
0 0
1 15 15 22.50
2 43 28 42.00
3 75 32 48.00
4 105 30 45.00
5 130 25 37.50
6 150 20 30.00
7 164 14 21.00
8 174 10 15.00
9 182 8 12.00
10 188 6 9.00
11 192 4 6.00

(a) If the competitive wage rate is \$15.00 per unit of labor, how many units of labor will 3M hire? Briefly explain your answer.
(b) Calculate 3M's gross profit at that combination of wages and labor. Assume that there are zero capital costs, so gross profits equal total revenue less labor costs. Show your calculation.

5. In the below table, which country has the least equal distribution of income? The most equal distribution?

Percent of Income
Quintile A B C
20 8.5 10.2 2.3
40 10.1 15.2 6.1
60 12.5 18.3 12.3
80 15.1 23.1 18.1
100 53.8 33.2 61.2

#### Solution Summary

least squares regression for fixed and variable costs through Excel

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