Mustang has $100 of income per week available for recreational activities, including exercise, movies, restaurant meals, etc. Mustang's health club charges a fee of $4 per hour, and Mustang chooses to use the facility for 10 hours per week. a. Illustrate Mustang's consumption choice in a diagram with health club usage on the horizontal axis and other recreational activities on the vertical axis. b. Now Mustang's health club institutes a new pricing policy. A fixed fee of $30 per week is charged for access to the facilities, but then a rate of $1 per hour is charged for each hour of utilization. Is Mustang better off as a result of this change? Explain your answer using the diagram that you drew in (a).

Mustang has $100 of income per week available for recreational activities, including exercise, movies, restaurant meals, etc. Mustang's health club charges a fee of $4 per hour, and Mustang chooses to use the facility for 10 hours per week. a. Illustrate Mustang's consumption choice in a diagram with health club usage on the horizontal axis and other recreational activities on the vertical axis. b. Now Mustang's health club institutes a new pricing policy. A fixed fee of $30 per week is charged for access to the facilities, but then a rate of $1 per hour is charged for each hour of utilization. Is Mustang better off as a result of this change? Explain your answer using the diagram that you drew in (a).

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter5: Consumer Choice: Individual And Market Demand

Section: Chapter Questions

Problem 2TY

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Joe Smiley buys his mobile phone services from Sprint, the sole provider in his state of Wyoming. Sprint offers the following pricing plans: a fee of 10 dollars per month and 50 minutes of free calls per monthor a fee of 20 dollars per month and 100 minutes of free calls. Under both plans the price of additional calls is 25 cents per minute. Joe Smiley's demand curve for mobile phone services is P=100 - 0.5Q where P is measured in cents/minute and Q is measured in minutes per month. Answer the following questions: a) suppose Joe Smiley subscribes to the first plan (10 dollar fee and 50 free minutes)(i) how much calling time would he consume? (ii) what would be his total benefit? What would be his surplus? b) suppose Joe Smiley subscribes to the second plan (20 dollar fee and 100 free…
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How many drink(s) and Big Mac(s) should you purchase to reach consumer optimum?
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