3. Suppose that the bureaucrats who run the Defense Department are budget maximizers. Indealing with Congress, the bureaucrats announce a price p per unit of national defense and Congressgets to choose the level of defense (denoted z). Assume that the Dz curve, which representsCongress' demand for z, is given by Dz = 16 – z.Suppose the true cost per unit of national defense is 3 (i.e., c = 3). Find the socially-optimal level of defense.bureaucrats, and the resulting level of z chosen by Congress. Is national defenseunderprovided, overprovided, or optimally provided? Is part of the budget wasted bythe bureaucrats? If so, how much is wasted?a)Then, find the value of p that is announced by theb)Suppose instead that c = 12. Repeat part (a) for this case.

Congress demand for level of defense D = 16 – z P = 16 – z Cost per unit of defense = 3

Answered: 3. Suppose that the bureaucrats who run…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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