Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 4, Problem 17PAA
To determine
The graphical representation of budget set when a company offers a frequent buyer program.
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A common marketing tactic among many liquor stores is to offer clientele quantity (or volume) discounts. For instance, the second-leading brand of wine exported from Chile sells in the United States for $15 per bottle if the consumer purchases up to eight bottles. The price of each additional bottle is only $8. If a consumer has $200 to divide between purchasing this brand of wine and other goods, graphically illustrate how this marketing tactic affects the consumer's budget set if the price of other goods is $1. Assuming a consumer has standard indifference curves (i.e.,resembling those in Figure 4-2), will she ever purchase exactly 8 bottles of wine?
The Einstein Bagel Corp. has used a frequent buyer program whereby a consumer receives a stamp each time she purchases one dozen bagels for $6. After a consumer accrues 10 stamps, she receives one dozen bagels free. This offer is an unlimited offer, valid throughout the year. The manager knows her products are normal goods. Given this information, construct the budget set for a consumer who has $200 to spend on bagels and other goods throughout the year.
Suppose that the price of commodity Y is $ 20 per unit while the price of commodity X is $ 15 per unit and suppose that an individual’s money income is $ 100 per period and is all spent on X & Y.
Draw the budget constraint line for this consumer at the initial point.
If the price of X decreases to $10, incorporate BL2 showing change in the Budget line.
Chapter 4 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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