Interns,
Mr. Howell, the prestigious founder and owner of our company Coal is Gold Electricity would like you to perform an
analysis on the company’s emission control. The government is providing subsidies to encourage reducing emissions.
Mr. Howell would like to know is it worth reducing emissions with the subsidy. The pertinent information can be found
in Mr. Howell’s email below.
“Mr. Kleppin,
As you know, my company has supplied the energy needs of the entire state since 1968! I can’t believe they are
demanding that we reduce our emissions! This will force us to pass on the increase in the cost to our customers!
Thankfully, the government will be providing a subsidy to offset these costs! The current subsidy is $500 per pound of
pollution reduction each day with a minimum reduction of 15 pounds per day. I have spoken to the engineering
department regarding the cost to reduce emissions. They informed me that the average daily cost to us is a fixed daily
cost of $100 in addition to $30 times the square of the quantity of pounds of pollution reduced each day. Currently, I
would like to reduce emissions by 15 pounds of pollutant per day. At this level, what is the marginal average daily cost of
reducing emissions to 16 pounds of pollutant per day? What is the average daily cost at this reduction level? Is the
average daily cost increasing or decreasing at this reduction level? With the government subsidy, what would be our
average daily cost for reducing emissions by 15 pounds of pollutant per day? The government would like us to reduce
emissions by 20 pounds of pollutants per day. Could we accomplish this with no cost to us? If not, at what reduction level
would we have no cost to us? What do you recommend? I would like you, Mr. Kleppin, to give the interns a chance to
earn one of the 10 available positions at the end of their internship by giving them the opportunity to do the analysis.”