Final answer:
Among alternative cost functions, the important criteria are economic plausibility, goodness of fit, and the speed with which cost estimates can be determined. These ensure the function is economically sensible, fits well, and provides quick estimates.
Step-by-step explanation:
When choosing among alternative cost functions, the three criteria that are important are economic plausibility, goodness of fit, and the speed with which cost estimates can be determined.
It is essential to ensure that the chosen cost function makes economic sense (economic plausibility), fits the data well (goodness of fit), and can provide estimates in a timely manner (speed with which cost estimates can be determined). These criteria help in finding a cost function that is reliable and practical for decision-making purposes.
The goodness of fit typically involves statistical measures like the correlation coefficient and the coefficient of determination, which help to verify if a linear relationship accurately represents the data. To determine if a line is the best way to fit the data, one should look at the scatter plot and the significance of the correlation coefficient. If the correlation coefficient is significant, a linear model may be suitable.
Additionally, slope of the least-squares line is crucial in interpreting how changes in the independent variable (size) will affect the dependent variable (cost). This slope value provides insights into the rate of change between the variables. Identifying outliers is also part of analyzing the data, as outliers can significantly affect the regression analysis and the resulting cost estimations.