Supply and Demand and Average Winter Temperature Essay

832 Words Jun 6th, 2015 4 Pages
Homework Questions

1) El Niño wind patterns affected the weather across the United States during the winter of 1997–1998.
Suppose the demand for home heating oil in Connecticut is given by Q = 20 – 2Phho + 0.5Png – TEMP, where
Q is the quantity of home heating oil demanded, Phho is the price of home heating oil per unit, Png is the price
of natural gas per unit, and TEMP is the absolute difference between the average winter temperature over the
past 10 years and the current average winter temperature. If the current price of home heating oil is $1.20,
the current price of natural gas is $2.00, and the average winter temperature this year is 40 degrees compared
to 28 degrees over the past 10 years.
A. What is the quantity of home heating
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3.) A regression of exports as a function of imports in 1991 across industry types yielded
exports = 68 – 0.3(imports), R2 = .25, Prob > F = .26, F-critical =2.91

If imports by an industry equal 60, what is the estimate of exports from this industry? 50


How confident are you of your estimate? Explain. Not Very. The F-statistic is far below the
critical value which means the coefficient are not jointly significant and since there is only one
coefficient it will not be significantly significant. In addition the R-squared is fairly low and only
explains 25% of the variation in exports.
c. How much of the variation is explained by the regression? 25%

4) Why Can’t We Be Friends? operates a conflict settlement service for distressed couples. If it has no
fixed costs and its monthly average variable cost of cases is given by AVC = 2.5Q + 500. Its caseload
is 50 conflicts.
a. What is the Average cost for this firm at this caseload? 625
b. What is the Marginal cost for this firm at this caseload? 750
5) Output is produced according to Q = 4LK, where L is the quantity of labor input and K is the quantity
of capital input. If the price of K is $10 and the price of L is $5?
a. Does this production function exhibit constant, increasing or decreasing returns to scale?
b. Estimate the cost-minimizing combination of K and L capable of producing 32 units.
L = 4 and K = 2. There are many ways to do this, the easiest is to is to calculate the marginal

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