Estimation of cost function in managerial economics

Econ 601 Term project Summer 2019

Guidelines

Purpose (1 page)

The purpose of the term project is to analyze, estimate or forecast the demand of a good, as well as the estimation of a production cost function. The steps involved in the analysis and estimation of demand or cost functions include the analysis of optimal decisions based on the parameters of the functions. The purpose of the term project must clearly identify the potential (or hypothetical) uses of the results. Structure of the term project The analysis will be presented as a written report including the following sections:

1. Introduction and definition of the problem (1 – 2 pages)

This section addresses the following topics: a) why is this analysis important and why should we care about it? Why is this a topic of importance for managerial decisions? What is the underlying economic problem (e.g., is it about allocating resources, understanding consumer or firm’s behavior, estimating demand or cost functions)?

2. Characteristics of the market or sector (1 – 2 pages)

This section describes the market or the sector where the analysis is conducted. This description must include the identification of the economic sector; for instance, whether the study is about markets in agriculture, industry or services. This section also explains whether the analysis refers to a specific market (i.e., defined by location, type of product, etc.), or a whole industry or national market.

3. Theoretical approach for the analysis (1 – 2 pages)

This section explains the concepts and theories that guide your analysis. If the project is about estimating a demand function, for instance, here you explain the variables that you anticipate will have an effect on quantity demanded of the product of your choice. You also introduce here your hypothesis (e.g., in the case of demand, we expect that the relationship between quantity demanded and price of the good follows the law of demand, or if the good under analysis is a normal good we expect to see a positive effect of income on quantity demanded).

4. Description of the data (2 – 3 pages)

You introduce the nature of the data (e.g., cross-section or time-series), the variables included, as well as the characteristics of the variables defined in terms of descriptive statistics (i.e., mean, standard deviation, maximum and minimum values).

5. Estimation/Analysis methodology (1 – 2 pages)

You explain in this section the methodology of the analysis, whether this is a regression analysis with Ordinary Least Squares (OLS), or time-series analyses, variable forecast, etc. You also explain here the variables chosen for the analysis (based on what you explained in Section 3).

6. Results (1 – 2 pages)

You introduce and discuss the results of your statistical analysis. What are the main findings of your analysis, and what can we learn from your work?

7. Conclusions and recommendations (1 – 2 pages)

Based on the findings of your analysis, what would the managerial recommendations be? How the results of your project may inform managerial decisions and contribute to the objectives of the firm? If you think that the analysis could be improved by including other variables (not currently available in your dataset), what would these variables be, and why?