Question

1. (30 pts.) John is the Southwestern Regional Manager for the National Forest Service and has to make decisions about how many tons of fish (P) to stock and how many new trails (T) to cut for recreational use. John's budget for Tonto National Forest in 2018 is $135,000. The cost of stocking a ton of fish is $3,000, while the cost of cutting a new trail is $27,000 (note, these figures are completely made up). (a) Write John's budget constraint and graph the budget set, placing trails on the y axis. Note: be careful to label your axes and intercepts. (b) What is the slope of the budget line? (e) T/F: John can afford to stock 10 tons of fish and build 3 new trails in 2018. Explain using math and/or graphical illustration. (d) Graphically illustrate (using indifference curves) what John's optimal choice of fish and trails should look like if his preferences and behavior obey the standard assumptions.