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?© BrainMass Inc. brainmass.com October 17, 2018, 12:38 pm ad1c9bdddf
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. ...
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.
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?View Full Posting Details