Question

11. Suppose a school principal is trying to increase academic outcomes by providing snacks to students. She is allocating her money between two snack inputs: bananas and yogurt. She has a budget of $400. A carton of bananas costs $40, and a bundle of yogurts costs $50.

a) Draw the principal’s budget constraint, putting bananas on the x-axis and yogurts on the y-axis. Write down the equation for the budget constraint.

b) Suppose productive efficiency occurs at the point where she consumes 5 cartons of bananas and 4 bundles of yogurts. Label this point “PE” and draw the corresponding isoquant line at the point of efficient allocation.

c) Suppose the school district implements an input policy that specifies schools must spend their budget on providing at least 4 cartons of bananas to students. How will this change the way the principal allocates between bananas and yogurt? Explain.

d) Suppose that instead of an input policy, the school district implements a total resource policy and give the school a budget of $500 instead of $400. How does this change the amount of bananas purchased at the point of productive efficiency? How does this change the number of yogurts purchased? What is the slope of the isoquant at the new point of productive efficiency?

Answer 1

********PLEASE UPVOTE AS SMALL TOKEN OF APPRECIATION*******