Estimating A Cost Function Using The High-Low Method
to John F. Kennedy International Airport in New York City. Each of its 10
helicopters makes between 1,000 and 2,000 round-trips per year. The records
indicate that a helicopter that has made 1,000 round-trips in the year incurs
an average operating cost of $300 per round-trip, and one that has made 2,000
round-trips in the year incurs an average operating cost of $250 per
round-trip.
1. Using the high-low method, estimate the linear
relationship y = a + bX, where y is the total annual operating cost of a
helicopter and X is the number of round-trips it makes to JFK airport during
the year.
2. Give examples of costs that would be included in a and in
b.
3. If Reisen Travel expects each helicopter to make, on
average, 1,200 round-trips in the coming year, what should its estimated
operating budget for the helicopter fleet be?
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