322 Words2 Pages

Chapter 3 Applied Problems
2. Appalachian Coal Mining should minimize net cost by choosing that level of pollution (P) where the marginal benefit of pollution reduction equals the marginal cost of pollution reduction:
1,000 – 10P = 40P
P* = 20 units of pollution.
4. a. 2
b. $500 (= $25 ´ 20 radios not stolen due to hiring 1 guard)
c. 4
Chapter 4 Applied Problem
1. a. The intercept a is expected to be positive because even if no advertising is undertaken, some sales are expected to occur. b is expected to have a positive sign since Vanguard's sales are positively related to its level of advertising expenditures. Vanguard's sales should be inversely related to its rivals' expenditures on advertising, so c is expected to be negative.
b. a is the sales of Bright Side detergent when neither Vanguard nor its rivals advertise. b is ΔS/ΔA, the increase in Bright Side sales attributable to a $1,000 per week increase in advertising expenditures by Vanguard. c is ΔS/ΔR, the decrease in Bright Side sales attributable to a $1,000 per week increase in advertising expenditures by Vanguard's rivals.
c. The exact level of significance of is 0.0128. There is only a 1.28% chance that b = 0, which is better than the 10 percent level required by the marketing director.
d. The exact level of significance of is 0.0927. There is a 9.27% chance that rivals’ spending on advertising does not affect Vanguard’s sales (i.e., b = 0), which is just barely better than the 10 percent level required by the marketing director.
e. About 78 percent of the variation in sales remains unexplained. Find additional explanatory variables that have a significant affect on S. The manager might try adding the price of its detergent and the

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