Blake Electronics
Basic Estimation Techniques
In order to implement the various techniques discussed in this class, the students must be able to determine the mathematical relation between the economic variables that make up the various functions used in economicsdemand functions, production functions, cost functions, and others. For example, a manager often must determine the total cost of producing various levels of output. As you will see later, the relation between total cost (C) and quantity (Q) can be specified as
PARAMETERS OF THE EQUATION where a, b, c, and d are the parameters of the cost equation. Parameters are coefficients in an equation that determine the exact mathematical relation among the variables in the equation. Once the numerical values of the parameters are determined, the manager then knows the quantitative relation between output and total cost. For example, suppose the values of the parameters of the cost equation are determined to be a = 1,262, b = 1.0, c = 0.03, and d = 0.005. The cost equation can now be expressed as:
This equation can now be used to compute the total cost of producing various levels of output. If, for example, the manager wishes to produce 30 units of output , the total cost can be calculated as
equal to:
The process of finding estimates of the numerical values of the parameters of an equation is called parameter estimation. REGRESSION ANALYSIS Although there are several techniques for estimating parameters, the values of the parameters are often obtained by using a technique called regression analysis. Regression analysis uses data on economic variables to determine a mathematical equation that describes the relation between the economic variables. Regression analysis involves both: 1. the estimation of parameter values and 2. testing for statistical significance. In this notes and the notes
In order to implement the various techniques discussed in this class, the students must be able to determine the mathematical relation between the economic variables that make up the various functions used in economicsdemand functions, production functions, cost functions, and others. For example, a manager often must determine the total cost of producing various levels of output. As you will see later, the relation between total cost (C) and quantity (Q) can be specified as
PARAMETERS OF THE EQUATION where a, b, c, and d are the parameters of the cost equation. Parameters are coefficients in an equation that determine the exact mathematical relation among the variables in the equation. Once the numerical values of the parameters are determined, the manager then knows the quantitative relation between output and total cost. For example, suppose the values of the parameters of the cost equation are determined to be a = 1,262, b = 1.0, c = 0.03, and d = 0.005. The cost equation can now be expressed as:
This equation can now be used to compute the total cost of producing various levels of output. If, for example, the manager wishes to produce 30 units of output , the total cost can be calculated as
equal to:
The process of finding estimates of the numerical values of the parameters of an equation is called parameter estimation. REGRESSION ANALYSIS Although there are several techniques for estimating parameters, the values of the parameters are often obtained by using a technique called regression analysis. Regression analysis uses data on economic variables to determine a mathematical equation that describes the relation between the economic variables. Regression analysis involves both: 1. the estimation of parameter values and 2. testing for statistical significance. In this notes and the notes