The Economics Department has $60,000 to spend on computers (c) and other stuff (g), where Pc = Pg = 1. Suppose the department chair has derives utility from computers and other stuff in the following way: U(c, g) = cg². (Place “other stuff” on the y axis)

c. What happens to the budget constraint of the department if, instead of an outright gift of $10,000, the alumnus makes a matching gift of $0.50 for every dollar the department spends on computers?

d. How much will the department spend on computers now?

e. If the alumnus cares less about the department’s computer lab than anything else the department does, which method of funding will he choose? Explain

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Matching Gifts and Utility Maximization c Budget Constraint with Matching Gift The initial budget co... View the full answer