A business consulting firm has recently begun to construct interactive web pages for 10 of its clients. The consulting firm foresees considerable future demand for website and webpage construction, but is uncertain whether it can compete in this area. To compete successfully, the consulting firm must be a low-cost producer of these sites. The firm decides to gather extensive cost data for each of the 10 jobs that it has already completed. The firm also knows the number of webpages produced for each client.

a. How can you use regression to estimate variable and fixed costs of constructing web pages?

b. What insights about how the firm can compete in the construction of webpages do estimates of the variable and fixed costs provide?

c. What problems exist in using the data to estimate variable and fixed costs?