Cost functions are often nonlinear with volume because production facilities are often able to produce larger quantities at lower rates than smaller quantities.

5 Using the following data, apply simple linear regression, and examine the residual plot. What do you conclude? Construct a scatter chart and use the Excel Trendline feature to identify the best type of curvilinear trendline that maximizes R2.

Units Produced Costs 500 $12,500 1,000 $25,000 1,500 $32,500 2,000 $40,000 2,500 $45,000 3,000 $50,000