Problem

1. Evaluate the following statements using graphical analysis. Provide a brief narrative explanation of your graph to support your evaluation. Make sure the axes and curves in your graphs are properly labeled.

a. True or false, "When demand for home heating oil increases, a shortage of heating oil will occur."

b. True or false, "A decrease in the supply of random access memory (RAM) chips for personal computers causes a shortage of RAM chips."

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= 70P, 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= 1,200 -10P. How much pollution reduction should Appalachian Coal Mining undertake?