A firm selling good X, initially sets a price of £4 per unit. As a policy to increases sales, it introduces the following quantity discount scheme. If consumers purchase 5 or more units of good X the price falls from £4 to £2.50 per unit. As this is a quantity discount scheme, the new lower price applies to all units of good X the consumer purchases, not just the additional units i.e. those of 5 or more. Using standard consumer choice theory analyse the impact of this quantity discount scheme on a range of consumers with different preferences. Assume they each have a budget of £40 to spend on X and all other goods. Assume that the initial price of X now increases from £4 to £6 per unit while the discounted price remains the same (£2.50 per unit). Illustrate and explain the impact of this price change on the consumers in your previous diagram.

A firm selling good X, initially sets a price of £4 per unit. As a policy to increases sales, it introduces the following quantity discount scheme. If consumers purchase 5 or more units of good X the price falls from £4 to £2.50 per unit. As this is a quantity discount scheme, the new lower price applies to all units of good X the consumer purchases, not just the additional units i.e. those of 5 or more. Using standard consumer choice theory analyse the impact of this quantity discount scheme on a range of consumers with different preferences. Assume they each have a budget of £40 to spend on X and all other goods. Assume that the initial price of X now increases from £4 to £6 per unit while the discounted price remains the same (£2.50 per unit). Illustrate and explain the impact of this price change on the consumers in your previous diagram.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter6: Demand Relationships Among Goods

Section: Chapter Questions

Problem 6.12P

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