Denver Bluff High School has $60,000 to spend on computers and other goods so its budget equation is C + X = 60,000, there C is expenditure on computers and X is expenditure on other things. The high school's preferences can be represented by the utility function U(C, X) = CX2, where the marginal rate of substitution is -X/2C. Currently, the high school's optimal bundle is $20,000 of computers, and $40,000 of everything else. a. Graph the school's budget line, with computers on the x-axis and all other goods on the y-axis. Label intercepts and the current optimal bundle and sketch an indifference curve. The State Education Commission wants to encourage "computer literacy" inschools, and so has proposed the following plan: Provide the schools with a "matching grant," in which the state will cover $0.50 of every $1 the school spends on computers (effectively lowering the price of 1 unit of C to $0.50). b. If the state adopts the plan, write the equation for Denver Bluff High's budget constraint. What is the school's optimal bundle (C.X) under this plan?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

Need to know the new budget constraint equation for part B and the new optimal bundle ([$30k, $40k], right?).  See the RED text.

Denver Bluff High School has $60,000 to spend on computers and other goods so its budget
equation is C + X = 60,000, there C is expenditure on computers and X is expenditure on other
things. The high school's preferences can be represented by the utility function U(C, X) = CX?,
where the marginal rate of substitution is -X/2C. Currently, the high school's optimal bundle is
$20,000 of computers, and $40,000 of everything else.
a. Graph the school's budget line, with computers on the x-axis and all other goods
on the y-axis. Label intercepts and the current optimal bundle and sketch an
indifference curve.
The State Education Commission wants to encourage "computer literacy" inschools, and so has
proposed the following plan: Provide the schools with a "matching grant," in which the state will
cover $0.50 of every $1 the school spends on computers (effectively lowering the price of 1 unit of C
to $0.50).
b. If the state adopts the plan, write the equation for Denver Bluff High's budget
constraint. What is the school's optimal bundle (CX) under this plan?
Transcribed Image Text:Denver Bluff High School has $60,000 to spend on computers and other goods so its budget equation is C + X = 60,000, there C is expenditure on computers and X is expenditure on other things. The high school's preferences can be represented by the utility function U(C, X) = CX?, where the marginal rate of substitution is -X/2C. Currently, the high school's optimal bundle is $20,000 of computers, and $40,000 of everything else. a. Graph the school's budget line, with computers on the x-axis and all other goods on the y-axis. Label intercepts and the current optimal bundle and sketch an indifference curve. The State Education Commission wants to encourage "computer literacy" inschools, and so has proposed the following plan: Provide the schools with a "matching grant," in which the state will cover $0.50 of every $1 the school spends on computers (effectively lowering the price of 1 unit of C to $0.50). b. If the state adopts the plan, write the equation for Denver Bluff High's budget constraint. What is the school's optimal bundle (CX) under this plan?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Budget Constraint
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education