# Bus640 Managerial Economics

Crystal G Tanner

BUS640: Managerial Economics

Brian Shaw

April 23, 2012

CH 3. 2. 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?

Set MC = MR and solve for P

40P = 1000-10P

40P + 10P = 1000

50P = 1000

P = 1000/50

P = 20 units of

*…show more content…*

A = > 0

B = > 0

C = < 0 b. Interpret the coefficients a, b, and c. The regression output from the computer is as follows:

Dependent Variable: S-------- R- Square F- Ratio p-Value on F

OBSERVATIONS: 36 0.2247 4.781 0.0150 PARAMETER STANDARD VARIABLE ESTIMATE ERROR T-RATIO P-VALUE INTERCEPT 175086.0 63821.0 2.74 0.0098 A 0.8550 0.3250 2.63 0.0128 R - 0.284 0.164 -1.73 0.0927

A = 175086 which means with no money spent on advertising the expected company sales would equal $175,086. B = .8555 since B > 0 this means that the effect on sales would be positive. C = -0.284 since C < 0 it would create negative effects on sales

c. Does Vanguard’s advertising expenditure have a statistically significant effect on the sales of Bright Side detergent? Explain, using the appropriate p-value.

P = 0.0128 < 0.10 therefore the answer is yes

d. Does advertising by its three largest rivals affect sales of Bright Side detergent in a statistically significant way? Explain, using the