Suppose that Robin produces the points on her final economics exam (exam score Q) according to the
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Suppose that Robin “produces” the points on her final economics exam (exam score Q) according to the following production function: Q = 2S + 3T where S = # of hours Robin spends studying on her own; T = # of hours spent working with a tutor. Robin has an EXCEL job that pays her $15 per hour and thus values her own time at PS = $15 per hour; the tutor charges PT = $20 per hour. Q = 2S + 3T
- a. Plot isoquants for exam scores Q1 = 60; Q2 = 75; Q3 = 90. Measure S on the horizontal axis. Fully label your graph, assigning numerical values wherever possible.
- b. Robin has to get a decent score on the final exam and has set aside $600 to pay for this. (Interpret this to mean that she can pay the tutor and/or can reduce her EXCEL hours, thereby forgoing income. Both S and T are input into her exam score production that she can buy at the input prices stated above.) Plot Robin’s isocost line for a total cost of TC = $600. Label the isocost and the intercepts.
- c. On your graph draw & label Robin’s expansion path. Provide a brief explanation for the shape/location of this expansion path.
- d. EXCEL pay remains the same but tutoring rates have gone up with overall wage inflation. The tutor now charges $30 per hour. How, if at all, will this affect Robin’s expansion path? Explain briefly.
Related Book For
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
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