Question # 1
ABC company believes that it can increase labor productivity and, therefore, net revenue by reducing waste in its factories.It estimates that the marginal cost function for reducingpollution by installing additional capital equipment is
MC = 40P
where P represents a reduction of one unit of waste at the company.It also feels that for every unit of pollution reduction the marginal increase in revenue (MR) IS
MR = 1,000 – 10P
How much waste reduction should ABC company undertake?