Denver Bluff High School has $60,000 to spend on computers and other goods so its budget equation is C + X = 60,000, there Cis expenditure on computers and Xis 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. %3D 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" in schools, 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. Add this new budget constraint to the graph above. making sure to label the line and the appropriate intercepts. 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 Cis expenditure on computers and Xis 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. %3D 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" in schools, 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. Add this new budget constraint to the graph above. making sure to label the line and the appropriate intercepts. What is the school's optimal bundle (C,X) under this plan?
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.7P
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***Please provide an answer and explanation for BOTH parts (A & B). B builds on and cannot be completed without A.
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 Cis expenditure on computers and Xis 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" in schools, 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. Add this new budget constraint to the graph above,
making sure to label the line and the appropriate intercepts. What is the
school's optimal bundle (C,X) under this plan?
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