Question

In: Economics

You are hired as the superintendent in a local student district, and you have to decide...

You are hired as the superintendent in a local student district, and you have to decide how to allocate money between textbooks and computers.

A. What is the optimal allocation rule you should follow when deciding how many textbooks and computers to provide?

B. Suppose the price of computers decreases. How does the optimal allocation of computers change? Assume that both textbooks and computers have diminishing marginal returns. Use the optimal allocation rule as a guide.

Solutions

Expert Solution

Answer A: The allocation of the given money available with the superintendent which has to be allocated between textbooks and computers will be determined by the marginal rate of substitution which is the slope of the indifference curve and the price ratio of textbooks and computers which is actually the slope of the budget line. The Marginal rate of substitution is equal to the ratio of marginal utilities of textbooks and computers respectively.

The MRS and the price ratio have to be equated in order to get the optimal bundle of the quantity of textbooks and computers. The optimal bundle will be at the point where the budget line becomes tangent to the indifference curve which signifies that the utility has been maximized given the constraint of the budget. The marginal rate of substitution tells us the quantity of one good that a person is 'willing' to substitute for a unit quantity of other good whereas the price ratio tells us the rate at which the market allows for the exchange of one good for the other. The equality of these two will give us the optimal bundle since it would mean that the rate at which the consumer is willing to substitute one good for the other is offered and allowed by the market prices too.

Answer B : If the price of the computers falls, the optimal bundle will change because the budget line itself will change and therefore the slope of the budget line will also change. Since the slope of the budget line is equal to the price ratio of textbooks to computers, a fall in price of computers will mean an increase in the slope of the budget line. The new optimal bundle will then be given by the indifference curve at which this new budget line becomes tangential. The new optimal bundle will have more quantity of computers and the person will be on higher indifference curve than before which means greater satisfaction.


Related Solutions

A superintendent of a school district was requested to present to the school board demographic data...
A superintendent of a school district was requested to present to the school board demographic data based on the schools within the district. One item that the superintendent had to present was the percent of students who were eligible for free or reduced price lunch (a commonly used proxy for socio-economic status). The following percents were reported for the 40 schools in the district: 53.7 52.4 73.1 49.6 58.4 54.7 54.7 45.0 74.7 79.4 47.2 52.4 21.4 37.5 76.0 67.3...
You own a construction company and have recently received a contract with the local school district...
You own a construction company and have recently received a contract with the local school district to refurbish one of its elementary schools. You are given an up-front payment from the school district in the amount of $5 million. The contract terms extend from years 2018 to 2020. When would you recognize revenue for this payment? What method of accounting would you use for this construction project and why? What would be the benefits and challenges with your method selection?
To further examine the school performance scores of the district, the superintendent identified schools within the...
To further examine the school performance scores of the district, the superintendent identified schools within the district that could be matched to schools from surrounding districts using a series of demographic characteristics such as size, socio-economic status, and percent special education students. The data that were collected are presented below. School Pair 1 2 3 4 5 6 7 8 9 Superintendent School 70 73 70 73 82 72 70 82 75 Matched School 70 69 71 73 87 67...
As the manager of a local hotel chain, you have hired an econometrician to estimate the...
As the manager of a local hotel chain, you have hired an econometrician to estimate the demand for one of your hotels (H). The estimation has resulted in the following demand function: QH = 3,000 – PH – 1.8PC – 2.5PSE + 2.4POH + .01M, where, PH is the price of a room at your hotel, PC is the price of concerts in your area, PSE is the price of sporting events in your area, POH is the average room...
(8 pts) The superintendent of a large school district speculated that high school students involved in...
(8 pts) The superintendent of a large school district speculated that high school students involved in extracurricular activities had a lower mean number of absences per year than high school students not in extracurricular activities. She generated a random sample of students from each group and recorded the number of absences each student had in the most recent school year. The data are listed below. Test the superintendent’s claim at the α=.01 significance level. [To receive full credit, your response...
The superintendent of a large school district speculated that high school students involved in extracurricular activities...
The superintendent of a large school district speculated that high school students involved in extracurricular activities had a lower mean number of absences per year than high school students not in extracurricular activities. She generated a random sample of students from each group and recorded the number of absences each student had in the most recent school year. The data are listed below. Test the superintendent’s claim at the α=.01 significance level. [To receive full credit, your response should be...
Assume you are a newly hired accountant for a local manufacturing firm. You have enjoyed working...
Assume you are a newly hired accountant for a local manufacturing firm. You have enjoyed working for the company and are looking forward to your first experience participating in the preparation of the company’s financial statements for the year-ending December 31, the end of the company’s fiscal year. As you are preparing your assigned journal entries, your supervisor approaches you and asks to speak with you. Your supervisor is concerned because, based on her preliminary estimates, the company will fall...
Chapter 12 Exercises12.47 You have just been hired as an accountant in a local bank. You...
Chapter 12 Exercises12.47 You have just been hired as an accountant in a local bank. You are called to a meeting with the ERM director. He tells you that the bank is considering a new accounting system and mentions the risks associated with switching to a new system as well as the risks associated with the current accounting system. Then he asks you to come up with a short list of risks associated with both systems. Provide the requested list...
You are a college student and have just been hired to work part-time in the accounting...
You are a college student and have just been hired to work part-time in the accounting department of Candy’s Cleaning Services. The person you are replacing had difficulty preparing the bank reconciliation for April 30, which is shown below. CANDY'S CLEANING SERVICES Bank Reconciliation April 30, 2017 Bank balance $33,466   Book balance $28,948 Add:   Deduct:     Interest $68      NSF, customer Bonne $419     Error Chq #93 127 195    $29,143    Outstanding cheques: Deduct: #879 $2,635     Service Charge 152 #100...
Suppose that you have been hired by the UF student health services department to design a...
Suppose that you have been hired by the UF student health services department to design a cohort study to assess the following hypothesis among UF students: Irregular sleep patterns increase the risk of headaches. please note key word is "DESIGN A COHORT STUDY" not a case control study. chegg answered the same question but for case-control design. i need help for the cohort study though same questions Be sure that your design addresses the following elements: Refine the study hypothesis...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT