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10. You operate an inland water transport service and hypothesize that your average costs per cargo ton-mile of operation (AVCOST) depend upon the average
10. You operate an inland water transport service and hypothesize that your average costs per cargo ton-mile of operation (AVCOST) depend upon the average length of haul (AVH) and route density (DEN). You estimate the following equation using a cross-section of 38 observations of water transport firms: AVCOST = 0,04 -0,15 AVH- 0,80 DEN, (0,01) (0,042) (0,235) R = 0,85, where AVCOST = average costs = total costs divided by cargo ton-miles; AVH = average length of haul = cargo ton-miles divided by tons carried; and DEN = route density = cargo ton-miles divided by route mileage. Numbers in parenthesis are standard errors. a. How well do the two explanatory variables explain average costs? b. Interpret coefficients. c. Calculate a 99% confidence region for the true marginal effect of density on average cost. d. Assuming that the average cost per ton-mile is 18 cents and average length of haul is 300 miles, what is the elasticity of average cost with respect to average length of haul?
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