Exercise 2. In order to encourage energy conservation, many public utility companies charge consumers a higher rate on units of electricity consumed in excess of some threshold amount. In contrast, a common practice by other firms is to offer “quantity discounts” to consumers who purchase large quantities of a good. Suppose income is $100, PX = $2 if the consumer buys less than 40 units of X, and PY = $5. A. For the energy case, assume PX = $3 if the consumer buys more than 40 units of X B. For the “quantity discounts” case, assume PX = $1 after 40 units of X were consumed Draw the budget constraints in each of the cases above. What are the implications of the opportunity sets in terms of consumer behavior to consume each of the products?
Exercise 2. In order to encourage energy conservation, many public utility companies charge consumers a higher rate on units of electricity consumed in excess of some threshold amount. In contrast, a common practice by other firms is to offer “quantity discounts” to consumers who purchase large quantities of a good. Suppose income is $100, PX = $2 if the
consumer buys less than 40 units of X, and PY = $5.
A. For the energy case, assume PX = $3 if the consumer buys more than 40 units of X
B. For the “quantity discounts” case, assume PX = $1 after 40 units of X were consumed
Draw the budget constraints in each of the cases above. What are the implications of the opportunity sets in terms of
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