Message : A study of 86 savings and loan associations in six northwestern states yielded the following cost function.
C=2.38- .006153Q1 + .000005359Q2 + 19.2X1
we were given the t-stats in same order.
2.84 2.37 2.63 2.69
C= ave. operating expense ratio, expressed as a percentage and defined as total operating expense ($million) divided by total assets ($million) times one hundred percent.
Q= output, measured by total assets ($million)
X1= ratio of the number of branches to total assets ($million)
We need to know:
A. which variables is (are) statistically significant in explaining variations in the average operating expense ratio?
B. What type of cost-output relationship (e.g., Linear, quadratic or cubic) is sugg ested by these statistical results?
C. Based on these results, what can we conclude abut the existence of economies or diseconomies of scale in saving and loan associations the northwest.