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?

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

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