Question

A recreation center would have the estimated value

• $1,000,000 if it has no public swimming pool

• $1,800,000 if it has a public swimming pool with 2 lanes

• $2,200,000 if it has a public swimming pool with 3 lanes

• $2,400,000 if it has a public swimming pool with 4 lanes

The pool costs $400,000 with 2 lanes. Each additional lane would cost $300,000. The city Park & Recreation Board is a bureaucracy that overview the center construction. The Board are the slack maximizer. Use this to answer the following 2 questions.

Answer for each questions are c and b, respectively, Please provide detail explanation ( not in handwriting form which I may not recognize it)

12. According to the Niskanen’s model of slack maximization, the Board will propose

a. to build the center with no swimming pool

b. the swimming pool with 2 lanes

c. the swimming pool with 3 lanes

d. the swimming pool with 4 lanes

13. According to the Niskanen’s model of slack maximization, the Board will request what budget for the pool?

a. $1,000,000 b. $1,200,000 c. $1,800,000 d. $2,200,000

Answer 1

Answer (12) : According to Niskanen’s model of budget maximization , it is the average cost which must be equated to the average revenue to identify if investment should be done in a project. The bureaucracy is always of the nature that it will want to increase its cost or invest in a project only when it can foresee a good return out of the project. Therefore, the primary motive of the bureaucrats is to maximize their profits and thereby in the process, also increase the value of the product or good they would invest in. In the case of the decision to propose the swimming pools , let us see what is the actual cost of the swimming pool and lane building.

                   If the swimming pool has no lanes, it will cost $1,000,000 , i.e. this is the base price.

                   If the bureaucracy decides to build up to 2 more lanes, they will require to bear $400,000 more, i.e. the total cost of the swimming pool with two lanes will cost them:

                                                       $1,000,000 + $400,000

                                                        = $1,400,000

                       If the bureaucracy decides to build up to 1 more additional lane, they will require to bear $300,000 more, i.e. the total cost of the swimming pool with two lanes will cost them:

                                                       $1,400,000 + $300,000

                                                        = $1,700,000

                     & If the bureaucracy decides to build up to 1 more additional lane, they will require to bear $300,000 more, i.e. the total cost of the swimming pool with two lanes will cost them:

                                                       $1,700,000 + $300,000

                                                        = $2,000,000

Now, if the bureaucracy decides to build 4 lanes, their profit margin would be very less , in place of it, if they propose the three lane swimming pool, they will earn a handsome profit margin.

Hence, the correct answer is c. the swimming pool with 3 lanes.

Answer (13) : At three lanes for the swimming pools, the recreation center will have the best value for it. It's manufacturing cost will be $1,700,000 and its value will be $2,200,000. In the case of other options, the manufacturing cost does not match with the value generated for the swimming pool. The bureaucracy will request for a budget of $1,800,000 as this will meet the requirement of the bureaucracy to build the three lanes and the swimming pool and also create a good value for the recreation center. Therefore, the correct answer is (c) $1,800,000