Immunization Program Food Aid Program Expenditures benefits Expenditure Benefits
ID: 1201816 • Letter: I
Question
Immunization Program
Food Aid Program
Expenditures
benefits
Expenditure
Benefits
10,000
60,000
10,000
20,000
20,000
90,000
20,000
40,000
30,000
115,000
30,000
60,000
40,000
135,000
40,000
80,000
50,000
150,000
50,000
100,00
A new manager of a children’s services program is assigned the task of administering two ongoing programs; one that provides immunizations and one that provides school lunches. The total amount she can spend is $60,000. The following table shows the expenditures and benefits of the two programs:
Questions:
(1) The previous manager allocated the $60,000 evenly between the two programs. What was the total benefit? Is this the optimal allocation? Why or why not? What would the new manager do if this is not the optimal allocation?
(2) A nurse urges the new manager to increase the level of spending in the immunization program $50,000 because of a prevailing unmet need. How should the new manager respond to the nurse’s request?
Immunization Program
Food Aid Program
Expenditures
benefits
Expenditure
Benefits
10,000
60,000
10,000
20,000
20,000
90,000
20,000
40,000
30,000
115,000
30,000
60,000
40,000
135,000
40,000
80,000
50,000
150,000
50,000
100,00
Explanation / Answer
The given table is reconstructed below to investigate the marginal analysis:
Immunization Program
Food Aid Program
Expenditures
Benefits
Marginal Benefit
Expenditure
Benefits
Marginal Benefit
10,000
60,000
10,000
20,000
20,000
90,000
30,000
20,000
40,000
20,000
30,000
1,15,000
25,000
30,000
60,000
20,000
40,000
1,35,000
20,000
40,000
80,000
20,000
50,000
1,50,000
15,000
50,000
1,00,000
20,000
1) An allocation of 30,000 of expenditure on both programs implies that the marginal benefit of an additional 10000 expenditure spent on immunization program is more than the marginal benefit of an additional 10000 expenditure spent on food aid program. So this is not an optimized allocation. The total benefit is 175,000.
The optimum divison would require the two marginal benefits getting equalized which occurs when 40000 is spent on immunization program and 20000 is spent on food - aid program.
2) The request is not optimal since the marginal benefit of an additional 10000 expenditure spent on immunization program from the level of 40000 is less than the marginal benefit of an additional 10000 expenditure spent on food aid program. The net benefit is 170,000 while the net benefit by allocating (40000, 20000) combination is 175000.
So the manager should reject the proposal.
Immunization Program
Food Aid Program
Expenditures
Benefits
Marginal Benefit
Expenditure
Benefits
Marginal Benefit
10,000
60,000
10,000
20,000
20,000
90,000
30,000
20,000
40,000
20,000
30,000
1,15,000
25,000
30,000
60,000
20,000
40,000
1,35,000
20,000
40,000
80,000
20,000
50,000
1,50,000
15,000
50,000
1,00,000
20,000
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