For Exercises 10.1 and 10.2, see page 488; for 10.3 and 10.4, see page 490; for 10.5, see pages 493–494; for 10.6 to 10.8, see pages 498–499; for 10.9 and 10.10, see page 500; and for 10.11 and 10.12, see page 502.

Question 10.4

10.4 Fixed and variable costs.

In some mass production settings, there is a linear relationship between the number of units of a product in a production run and the total cost of making these units.

  1. Write a population regression model to describe this relationship.
  2. The fixed cost is the component of total cost that does not change as increases. Which parameter in your model is the fixed cost?
  3. Which parameter in your model shows how total cost changes as more units are produced? Do you expect this number to be greater than 0 or less than 0? Explain your answer.
  4. Actual data from several production runs will not fall directly on a straight line. What term in your model allows variation among runs of the same size ?