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# Managerial Economics and Opportunity Set

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A recent newspaper circular advertised the following special on tires: "Buy three, get the fourth tire for free—limit one free tire per customer." If a consumer has \$360 to spend on tires and other goods and each tire usually sells for \$40, how does this deal impact the consumer's opportunity set?

https://brainmass.com/economics/managerial-economics/managerial-economics-and-opportunity-set-584869

#### Solution Preview

The consumer's original budget line is ADB. This is because without the deal, if a consumer has \$360 to spend on tires and other goods, and each tire usually sells for \$40, then the consumer can buy 9 tires.
360/40 = 9

When the consumer is offered "buy three get one free", the budget line becomes ADEF. ...

#### Solution Summary

This solution contains 223 words and one graph explaining how the budget line changes and also how the deal impacts the consumer's opportunity set.

\$2.19

## Managerial Economics and Business Strategy

10) A worker views leisure and income as "goods" and has an opportunity to work at an hourly wage of \$15 per hour.
a Illustrate the worker's opportunity set in a given 24-hour period.
b Suppose the worker is always willing to give up \$11 of income for each hour of leisure. Do her preferences exhibit a diminishing marginal rate of substitution? How many hours per day will she choose to work?

11) It is common for supermarkets to carry both generic (store-label) and brand name (producer-label) varieties of sugar and other products. Many consumers view these products as perfect substitutes, meaning that consumers are always willing to substitute a constant proportion of the store brand for the producer brand. Consider a consumer who is always willing to substitute four pounds of a generic store-brand sugar for two pounds of a brand-name sugar.

Do these preferences exhibit a diminishing marginal rate of substitution between store-
brand and producer-brand sugar?

Assume that this consumer has \$24 of income to spend on sugar, and the price of a store-brand sugar is \$1 per pound and the price or producer-brand sugar is \$3 per pound. How much of each type of sugar will be purchased?

How would your answer change if the price of store-brand sugar was \$2 per pound and the price of producer-brand sugar was \$3 per pound?

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