Ellis, a staunch environmentalist, is hired right of graduate ...

[CQXA]

Ellis, a staunch environmentalist, is hired right of graduate school by the Environmental Protection Agency. He is ecstatic about having the opportunity to promote what he believes to be the public interest.
 
  Within a few years he gets promoted to manager of his bureau. Shortly after his promotion he successfully argues for a 30 percent increase in his department's budget. How might Ellis benefit personally from an increased budget? Now suppose that it was known to be true that the best thing for the environment was for a large portion of Ellis' budget to be shifted to another department. Why might Ellis fight this change? Why might he not?

Question 2

At the current price of a good, Al's consumer surplus equals 8, and Ben's consumer surplus equals 15. By using two-part pricing, a monopolist could increase his profit by
 
  A) 8.
  B) 16.
  C) 15.
  D) 30.

[firehawk60]

Answer to Question 1

Ellis would benefit from an increased budget in a variety of ways. First he would enjoy increased power and prestige from having more resources at his disposal. Second, he is likely to receive a higher income as there is a strong tendency for a bureaucrat's income and budget size to be positively correlated. Third, a budget increase is likely to mean a nicer working environment. Ellis might fight the change if the utility he loses from a large portion of his budget being transferred to another department is greater than the utility he gains from knowing the environment has been helped. If the gain in utility is greater than the loss in utility, he will not fight the transfer.

Answer to Question 2

B

[CQXA]

Correct answers!

[firehawk60]

Great! Please up vote