Microeconomic Questions
1 In this election year, issues of campaign finance andpolitical strategy are prominent Suppose that you are in charge of a campaignto win a party’s nomination You can spend money on a variety of methods fortrying to increase your candidates vote These include (a) door to door visits,(b) direct mail, (c) network television advertising
A If the law of diminishing returns applies to campaignfinance, what does it say about the marginal product on each of these campaigntactics? For our purposes one can view “output” as “votes”
B Suppose you have a fixed budget to spend on attracting votersin a particular state What condition would have to hold to indicate that youare allocating your budget across these three methods of attracting voters insuch a way to maximize the expected votes for your candidate? Why does it hold?(ignore any “strategic” effects ie assume that your campaign budgetchoices do not affect the choices made by other candidates)
C Use your answer to (a) to explain why you are likely tofind a way to allocate your campaign budget in such a way so that the conditionyou describe in (b) applies
D Suppose an undergraduate intern comes in and says that hecan reduce your television advertising costs by shooting an ad with his videocamera and posting it on YouTube If this reduces the cost of attracting voterswith direct advertising, use your answer to (b) to explain how and why youwould reallocate your budget among the different methods for attracting voters
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