Bus. 640 Economics

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Chapter 3: Problem 2:
Appalachian Coal Mining believes that it can increase labor productivity and, there- fore, net revenue by reducing air pollution in its mines. It estimates that the marginalcost function for reducing pollution by installing additional capital equipment is MC 40P where P represents a reduction of one unit of pollution in the mines. It also feels that for every unit of pollution reduction the marginal increase in revenue (MR) isMR 1,000 10P How much pollution reduction should Appalachian Coal Mining undertake? MC = MR and solve for P. That is 40P = 1000-10P

40P+10P=1000
50P=1000
P=20 units.

Problem 4:
Twenty first Century Electronics has discovered a theft problem at its warehouse and has decided to hire security guards. The firm wants to hire the optimal number of security guards. The following table shows how the number of security guards affects the number of radios stolen per week. Number of Security GuardsNumber of radios stolen per week

050
130
220
314
48
56

a.If each security guard is paid $200 a week and the cost of a stolen radio is $25, how many security guards should the firm hire? 2 guards: Number of Security GuardsNumber of radios stolen per week

050(200 × 0) + (25×50)=1250

130(200 x 1) + (25 x 30) =950
220(200 x 2) + (25 x 20) = 900
314(200 x 3) + (25 x 14) = 950
48(200 × 4) +(25 × 8)=1000
56(200 x 5) + (25 x 6) =1150

b.If the cost of a stolen radio is $25, what is the most the firm would be willing to pay to hire the first security guard? 50 – 30=20 * $25 = 500
So the maximum would be 500, anything over 500 would not be a benefit to the company.

c.If each security guard is paid $200 a week and the cost of a stolen radio is $50, how many security guards should the firm hire? 3 guards Number of Security GuardsNumber of radios stolen per week

050(200 × 0) + (50×50)=2500
130(200 x 1) + (50 x 30) = 1700
220(200 x 2) + (50 x 20) = 1400
314(200 x 3) + (50 x...
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