1. Exercise 9.1A study of 86 savings and loan associations in six northwestern states yielded the following costfunction.2.380.006153Q0.000005359Q²19.2X1C++(2.62)(2.84)(3.16)(3.50)where C = average operating expense ratio, expressed as a percentage and defined as totaloperating expense ($ million) divided by total assets ($ million) times 100 percent.Q = output; measured by total assets ($ million)X1 = ratio of the number of branches to total assets ($ million)Note: The number in parentheses below each coefficient is its respective t-statistic.Which of the variable(s) is (are) statistically significant in explaining variations in the averageoperating expense ratio? (Hint: t0.025,7€ 1.99.) Check all that apply.X1Q2What type of average cost-output relationship is suggested by these statistical results?QuadraticLinearCubicBased on these results, what can we conclude about the existence of economies or diseconomiesof scale in savings and loan associations in the Northwest?Diseconomies of scale at all output levelsEconomies of scale at all output levelsDiseconomies of scale at lower output levels and economies of scale at higher outputlevelsEconomies of scale at lower output levels and diseconomies of scale at higher outputlevels

Ans. To evaluate the variables that are statistically significant in explaining the variations is…

Answered: A study of 86 savings and loan…

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A study of 86 savings and loan associations in six northwestern states yielded the following cost function.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter9: Applications Of Cost Theory

Section: Chapter Questions

Problem 1E

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Question

1. Exercise 9.1
A study of 86 savings and loan associations in six northwestern states yielded the following cost
function.
2.38
0.006153Q
0.000005359Q²
19.2X1
C
+
+
(2.62)
(2.84)
(3.16)
(3.50)
where C = average operating expense ratio, expressed as a percentage and defined as total
operating expense ($ million) divided by total assets ($ million) times 100 percent.
Q = output; measured by total assets ($ million)
X1 = ratio of the number of branches to total assets ($ million)
Note: The number in parentheses below each coefficient is its respective t-statistic.
Which of the variable(s) is (are) statistically significant in explaining variations in the average
operating expense ratio? (Hint: t0.025,7€ 1.99
.) Check all that apply.
X1
Q2
What type of average cost-output relationship is suggested by these statistical results?
Quadratic
Linear
Cubic
Based on these results, what can we conclude about the existence of economies or diseconomies
of scale in savings and loan associations in the Northwest?
Diseconomies of scale at all output levels
Economies of scale at all output levels
Diseconomies of scale at lower output levels and economies of scale at higher output
levels
Economies of scale at lower output levels and diseconomies of scale at higher output
levels

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