Calculate the Functional Form of Average Variable Cost

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Question

Precision Engineering department has collected data on its average costs of production for the past 12 months. The monthly fixed cost is $4000 per month. The AVC and associated output data are presented below:

Month	Q	AVC $
Jan	70	375
Feb	58	540
Mar	160	450
Apr	120	255
May	130	138
Jun	120	150
Jul	10	450
Aug	35	350
Sep	80	60
Oct	110	70
Nov	100	90
Dec	190	153

Precision Engineering is a perfectly competitive firm. Based on the information above, explain if AVC suggests the functional form: AVC = a + bQ + cQ2. (Draw a scatter diagram of AVC on Y axis and Q on X axis. Fit the scatter diagram with a 2nd degree polynomial trend line.)

Summary

The question belongs to Statistics and it is about calculating whether or not the AVC or the Average Variable Cost of the firm is in a functional form: AVC = a + bQ + cQ2 and plot the same on a graph.

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