Cost benefit - Managerial Economics by ClassOf1

VIEWS: 106 PAGES: 1

Cost benefit analysis from the given data- How much pollution reduction should Appalachian Coal Mining undertake? : 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.

• pg 1
```									              Sub: Economics                                                       Topic: Managerial Economics

Question:
Cost benefit analysis from the given data- How much pollution reduction
should Appalachian Coal Mining undertake?
ClassOf1 provides expert guidance to College, Graduate, and High school students on homework and assignment problems in
Math, Sciences, Finance, Marketing, Statistics, Economics, Engineering, and many other subjects.

Appalachian coal Mining believes that it can increase labor productivity and, therefore, net
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 = 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) is MR = 1,000 – 10P

How much pollution reduction should Appalachian Coal Mining undertake?

Solution:
The marginal cost function is given as,

MC = 40P

The marginal Revenue function is given as,

MR = 1,000 – 10P

At equilibrium,                                    MR=MC

1,000 – 10P =40P

50P= 1000

P= 1000/50= 20

Appalachian Coal Mining should undertake 20 unit of pollution reduction.

** End of the Solution **
ClassOf1 provides expert guidance to College, Graduate, and High school students on homework and assignment problems in
Math, Sciences, Finance, Marketing, Statistics, Economics, Engineering, and many other subjects.

www.classof1.com

*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
utoring on subjects like
Finance, Marketing, Statistics, Economics and others. Check out more solved problems in our Solution Library.

www.classof1.com

*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in