1. Appalachian Coal Mining believes that it can increase labor productivity and, therefore, new revenue by reducing air pollution in its mines. It estimates that the marginal cost function for reducing pollution by installing additional capital equipment is
   MC = 40 P
   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) is
   MR = 1,000 - 10P
   How much pollution reduction should Appalachian Coal Mining undertake?
2. Twentyfirst 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 Number of radios

Security Guards stolen per week

0 50

1 30

2 20

3 14

4 8

5 6

1. 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. 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?
3. 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 . The director of marketing at Vanguard Corporation believes that sales of the company's Bright Side laundry detergent ( S) are related to Vanguard's own advertising expenditure (A) , as well as the combined advertising expenditures of its three biggest rival detergents (R) . The marketing director collects 36 weekly observations on S, A, and R to estimate the following multiple regression equation:

S = a + bA + cR

where S, A, and R are measured in dollars per week. Vanguard's marketing director is comfortable using parameter estimates that are statistically significant at the 10 percent level or better.

1. What sign does the marketing director expect a, b, and c to have?
2. Interpret the coefficients a, b, and c.
3. Does Vanguard's advertising expenditure have a statistically significant effect on the sales of Bright Side detergent? Explain, using the appropriate p- value.
4. Does advertising by its three largest rivals affect sales of Bright Side detergent in a statistically significant way? Explain, using the appropriate p- value.
5. What fraction of the total variation in sales of Bright Side remains unexplained? What can the marketing director do to increase the explanatory power of the sales equation? What other explanatory variables might be added to this equation?
6. What is the expected level of sales each week when Vanguard spends $40,000 per week and the combined advertising expenditures for the three rivals as $100,000 per week?

4.Bridget has a limited income and consumes only wine and cheese; her current consumption choice is four bottles of wine and 10 pounds of cheese. The price of wine is $10 per bottle, and the price of cheese is $4 per pound. The last bottle of wine added 50 units to Bridget’s utility, while the last pound of cheese added 40 units.

Is Bridget making the utility-maximizing choice? Why or why not?

If not, what should she do instead? Why?

5.In an article about the financial problems of USA Today, Newsweek reported that the paper was losing about $20 million a year. A Wall Street analyst said that the paper should raise its price from 50 cents to 75 cents, which he estimated would bring in an additional $65 million a year. The paper’s publisher rejected the idea, saying that circulation could drop sharply after a price increase, citing The Wall Street Journal’s experience after it increased its price to 75 cents. What implicit assumptions are the publisher and the analyst making about price elasticity?

6.Wilpen Company, a price-setting firm, produces nearly 80 percent of all tennis balls purchased in the United States. Wilpen estimates the U.S. demand for its tennis balls by using the following linear specification:

Q = a + bP + cM + dP R

Where Q is the number of cans of tennis balls sold quarterly, P is the wholesale price Wilpen charges for a can of tennis balls, M is the consumers’ average household income, and PR is the average price of tennis rackets. The regression results are as follows:

DEPENDENT VARIABLE: Q R-SQUARE F-RATIO P-VALUE ON F

OBSERVATIONS: 20 0.8435 28.75 0.001

PARAMETER STANDARD

VARIABLE ESTIMATE ERROR T-RATIO P-VALUE

INTERCEPT 425120.0 220300.0 1.93 0.0716

P -37260.6 12587 -22.96 0.0093

M 1.49 0.3651 4.08 0.0009

PR -1456.0 460.75 -3.16 0.0060

a.Discuss the statistical significance of the parameter estimates â, ˆb, Ĉ, and Ď using the p-values. Are the signs of b, c, and d consisten with the theory of demand?

Wilpen plans to charge a whole sale price of $1.65 per can. The average price of a tennis racket is $110, and consumers’ average household income is $24,600.

b.What is the estimated number of cans of tennis balls demanded?

c.At the values of P, M, and Pr given, what are the estimated values of the price(Ě), income (Em), and cross-price elasticities (Exr) of demand?

d.What will happen, in percentage terms, to the number of cans of tennis balls demanded if the price of tennis balls decreases 15 percent?

e.What will happen, in percentage terms, to the number of cans of tennis balls demanded if average household income increases by 20 percent?

f.What will happen, in percentage terms, to the number of cans of tennis balls demanded if the average price of tennis rackets increases 25 percent?

7. Substitution and Income Effects Paper

Managers are very interested in how a consumer makes a choice among alternatives. In this exercise, we ask you to consider the amount of money you spend purchasing gasoline to operate your automobile for a month and any alternatives available to you assuming your net income available to make those purchases. Also assume gasoline prices for your auto rose 100% during one difficult summer as our time period for the purpose of discussion. Explain, then, the following effects in terms of the income effect, or the substitution effect, or both effects:

• You drove less and purchased less gasoline.
• You ate out less often.
• You spent less to maintain your automobile.
• You took public transportation more often.
• You bought a bicycle.
• You did not take a vacation away from home.
• You bought fewer clothes and made due with more around the home.

Construct a paper based on the above issues. Use two external sources and demonstrate your understanding of the concepts by providing a graph of each effect as a figure in your paper.

Price: $34.24

Solution: The downloadable solution consists of 12 pages, 2224 words and 8 charts.
Deliverable: Word Document