Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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: Cengage Learning
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Chapter 9, Problem 1E

a)

To determine

To evaluate the variables that are statistically significant in explaining variations in the average operating expense ratio

a)

Expert Solution
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Explanation of Solution

In statistics the t-statistics is the ratio of the departure of a parameter's estimated value from its hypothesized value to its standard error. It is used via the Student's t-test in hypothesis testing. For a T test the T-statistic is used to determine whether the null hypothesis should be accepted or rejected.

These variables are tested at the statistically significant level of 5% that is 0.5.

Variable is significant, that is t value is larger than 0.025; the value of 0.025 is around 2. All the t values of variable are greater than the 2.00; hence, all values are significant in explaining the cause and effect relationship.

Economics Concept Introduction

Introduction: The Operating Expense Ratio (OER) is a measure of the cost of operating a piece of property compared with the property’s revenue. It is calculated by dividing the operating expense (minus depreciation) of a property by its gross operating revenue and is used to compare expenses of similar properties.

c)

To determine

To evaluate the conclusion about the existence of economies or diseconomies of scale in savings and loan associations in the northwest

c)

Expert Solution
Check Mark

Explanation of Solution

The cost analysis is concerned with determining the money value of inputs (labor, raw materials), referred to as the total cost of production which helps to determine the optimum production level.

It can be concluded here that cost and output relationship show that the shape of cost is U shaped, U shape of cost curve denotes that cost decreases up to the certain point and economies of scale ensues. After the certain level of output, economies of scale changes into diseconomies of scale.

Economics Concept Introduction

Introduction: Economies of scale are cost advantages that businesses reap when production is successful. By rising production and reducing costs, businesses can achieve economies of scale. It is because it spreads prices over a larger variety of products. The costs may be fixed as well as variable.

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A study of 86 savings and loan associations in six northwestern states yielded the following cost function. C� = 3.69 - 0.007999Q� + 0.000005359Q2�2 + 25.0X1�1     (3.69)   (3.08)   (3.42)   (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�1 = ratio of the number of branches to total assets ($ million) Note: The number in parentheses below each coefficient is its respective t-statistic. Holding constant the effects of bank branching (X1�1), what is the level of total assets that minimizes the average operating expense ratio? $746.31 million   $1,562.70 million   $1,492.63 million   $461.31 million     What is the average operating expense ratio for a savings and loan association with the level of total assets determined in the previous part and 1 branch?…
A study of 86 savings and loan associations in six northwestern states yielded the following cost function. C = 3.12 - 0.006768Q + 0.000005359Q2 +21.1X1 (3.12) (2.61) (2.89) (2.96) where C = average operating expense ratio, expressed as a percentage and defined as total operating expense ($ 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. Holding constant the effects of bank branching (X1), what is the level of total assets that minimizes the average operating expense ratio? $1,262.92 million $1,558.81 million $631.46 million $460.99 million What is the average operating expense ratio for a savings and loan association with the level of total assets determined in the previous part and 1 branch? 1.17% 3.15% 1.02% 5.63% What is the ratio with 10 branches instead? 5.93% 1.47%…
A study of 86 savings and loan associations in six northwestern states yielded the following cost function. C� = 2.38 - 0.006153Q� + 0.000005359Q2�2 + 19.2X1�1     (2.86)   (3.08)   (3.68)   (2.96)   where C� = average operating expense ratio, expressed as a percentage and defined as total operating expense ($ million) divided by total assets ($ million) times 100 percent. Q� = output; measured by total assets ($ million) X1�1 = 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: t0.025,70=1.99�0.025,70=1.99.) Check all that apply. Q�   Q2�2   X1�1     What type of average cost-output relationship is suggested by these statistical results? Quadratic   Cubic   Linear     Based on these results, what can we…
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