Question

In: Statistics and Probability

Suppose a manufacturing firm has two factories (Factory 1 and Factory 2), and a single production...

Suppose a manufacturing firm has two factories (Factory 1 and Factory 2), and a single production process (Process A) that is used in both factories. A new process (Process B) is developed that potentially reduces production costs. To test whether Process B is less costly than Process A, an experiment is designed where:

  1. Within each Factory, products are assigned randomly to Process A or Process B.
  2. Production costs for each product are recorded.

Note that resources (i.e. materials, workers, equipment) are not reassigned across factories.

Let Yi be the cost of producing product i, let Xi be 1 if Process B is used to produce i and 0 if Process A is used, and let Wi be 1 if product i is produced in Factory 1 and 0 if it is produced in Factory 2.

In a regression of Yi on X, it is advisable to:

a.

Exclude Wi as products are randomly assigned and including Wi would increase standard errors.

b.

Exclude Wi as it is uncorrelated with Xi

c.

Include Wi as E(ui | Xi) ≠ 0, but E(Xi | Wi) = 0

d.

Include Wi as E(ui | Xi) ≠ 0, but E(ui | Xi, Wi) = E(ui | Wi)

Solutions

Expert Solution

NOTE: If you satisfy with this solution please give me a thumb up. Thank-you :)


Related Solutions

Suppose there are two factories that emit a certain pollutant into the air. When a factory...
Suppose there are two factories that emit a certain pollutant into the air. When a factory reduces emission, there is a “marginal abatement cost” (MAC) for each unit of pollution abatement (reduced emission). The marginal abatement costs for the two factories are given by MAC1 and MAC2 respectively. Let MAC1 = 100 − 10E1 and MAC2 = 50 − 10E2, where E is the level of emission. Now assume each unit of emission causes a damage to the society given...
Factory Overhead Rates and Account Balance Prostheses Industries operates two factories. The manufacturing operations of Factory...
Factory Overhead Rates and Account Balance Prostheses Industries operates two factories. The manufacturing operations of Factory 1 are machine intensive, while the manufacturing operations of Factory 2 are labor intensive. The company applies factory overhead to jobs on the basis of machine hours in Factory 1 and on the basis of direct labor hours in Factory 2. Estimated factory overhead costs, direct labor hours, and machine hours are as follows: Factory 1 Factory 2 Estimated factory overhead cost for fiscal...
. A firm faces following production function: ?? = ?? 1 2?? 1 2. Suppose the...
. A firm faces following production function: ?? = ?? 1 2?? 1 2. Suppose the rental rate of capital r=40 and wage rate for labor w=10. (25) a) For a given level of output, what should be the optimal ratio of capital to labor in order to minimize cost? b) What is the minimum cost of producing 200 units? At minimum cost for producing 200 units, how much capital and labor are needed? c) What is the minimum cost...
PROBLEM 1 AAA Company produces two products in a single factory. The following production and cost...
PROBLEM 1 AAA Company produces two products in a single factory. The following production and cost information has been determined. Model 1 Model 2 Units produced 1,000 200 Direct labor hours per unit 1 5 Material moves (total) 100 40 Testing time (total) 250 125 The controller has determined total overhead to be P480,000. P140,000 relates to material moves; P150,000 relates to testing; the remainder is related to labor time. DDD uses direct labor hours to allocate overhead to each...
. Hoverboards and the Factory Market Area: Suppose there is a single shoe factory in the...
. Hoverboards and the Factory Market Area: Suppose there is a single shoe factory in the region. The factory competes with homemade shoes and will sell shoes to any household for which the net price of factory shoes is less than the cost of homemade shoes. The cost of a homemade shoe is the opportunity cost of the time required to make the shoe at home, that is, the one gallon of milk that could be produced instead. Suppose the...
A manufacturing company produces products at three factories designated as numbers 1, 2, and 3. The...
A manufacturing company produces products at three factories designated as numbers 1, 2, and 3. The products are shipped to two demand destinations designated as A and B. For the coming month, production will be: Factory 1 = 3,000 units; Factory 2 = 2,500 units; and Factory 3 = 4,200 units. And for the coming month, demand will be: Destination A = 4,500 units and Destination B = 6,000 units. Which of the following is a correct linear programming constraint...
A competitive firm has a production function ?(?, ?) = (? + ?)1/2 where ? and...
A competitive firm has a production function ?(?, ?) = (? + ?)1/2 where ? and ? stand for inputs capital and labour respectively. The price of capital is ?, and the price of labour is ?. Which of the following is true? Regardless of ? and ?, cost minimisation requires that ? = ?. If ? > ?, contingent demand for labour is 0. The technology has increasing returns to scale. If ? < ?, profit maximisation requires that...
Suppose there are only two firms in the market, firm 1 and firm 2. They produce...
Suppose there are only two firms in the market, firm 1 and firm 2. They produce identical products. Firm 1 has a constant marginal cost where AC1 =MC1 =20, and firm 2 has a constant marginal cost AC2 =MC2 =8. The market demand function is given by Q = 100 - 0.5P. a) Find the Cournot Nash Equilibrium price and quantity, write down the profits for each firm. (Use "q1" to represent output level for firm 1, and "profit1" to...
Suppose that there are drastic technological improvements in shoe production in Home such that shoe factories...
Suppose that there are drastic technological improvements in shoe production in Home such that shoe factories can operate almost completely with computer-aided machines. Consider the following data for the Home country: Shoes:  Sales revenue = Ps x Qs = 100 , Payments to labor = W x Ls = 10 , Payments to labor = R x Ks = 90 , Percentage increase in the price = ∆Ps/Ps = 40% Computers: Sales revenue = Pc x Qc = 100,  Payments to labor...
Suppose that there are drastic technological improvements in shoe production in Home such that shoe factories...
Suppose that there are drastic technological improvements in shoe production in Home such that shoe factories can operate almost completely with computer-aided machines. Consider the following data for the Home country: Computers Shoes Sales revenue = PCQC = 100 Sales revenue = PSQS = 100 Payments to labor = W LC = 50 Payments to labor = W LS = 10 Payments to capital = RKC = 50 Payments to labor = RKS = 90 Percentage increase in the price...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT