Consider the following total cost function where yt represents total cost for the t-th firm and xt represents quantity of output.
yt=β1+β2 xt+β3 xt 2+β4 xt 3+et
(1)Compute 95% interval estimates of the parameters.
(2)At what output price is it profitable for firms to produce? How many firms in the sample
are producing unprofitable outputs?
(3)What parameter restrictions imply a linear average cost function? Test these restrictions.
(4)Estimate log-log cost function of the form ln(yt)=α1+α1ln(xt)+et. Does the RESET
test suggest the log-log function is preferable to the cubic? Is the log-log cost function
reasonable from an economic standpoint?


























































































