Hw Econ Question

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ECON 3305 Managerial Economics
Homework 1

The homework covers Ch 1~3. It has to be your individual work. Copying answer from others will violate ACADEMIC HONESTY policy to cause a failing grade. For each question, please show the necessary derivation (if applicable) and highlight the answer. Limit your answers within 5 pages. No cover sheet is required.

Q1: Ch 1 (15%)
At the beginning of the year, an audio engineer quit his job and gave up a salary of $ 175,000 per year in order to start his own business, Sound Devices, Inc. The new company builds, installs, and maintains custom audio equipment for businesses that require high- quality audio systems. A partial income statement for Sound Devices, Inc., is shown below:
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a. “When demand for home heating oil increases, a shortage of heating oil will occur.”
b. “A decrease in the supply of random access memory (RAM) chips for personal computers causes a shortage of RAM chips.”

Q5: Ch 3 (10%)
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 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?

Q6: Ch 3 (15%)
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.
# of security guards # of stolen per week 0. 50 1. 30 2. 20 3. 14 4. 8 5. 6

a. If each security guard is paid $200 a week and the cost of a stolen radio is $25, how many security
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