Suppose that Bill is a big movie buff and enjoys renting movies from the local video rental outlet. Assume that he is willing to pay $5 for the first movie he rents for the weekend but would only pay $4 for a second and still only $3 for a third movie. If the video rental franchise charges $3.50 per movie what will Bill’s consumer surplus be and why? Assume now that the video rental franchise now has a new package deal in which it offers to rent three movies to customers at a price of $9.00 would Bill be interested? How much consumer surplus would he enjoy now? What is the maximum price that the video rental franchise could charge and still make Bill interested in the package deal? Often bar owners will require that patrons stand in a line to get a wristband entitling them to pay a preferred price for drinks if they arrive early to the bar. The wristbands are typically tamper- resistant and can be easily identified if patrons have been switching wristbands with other customers. What is the bar owner concerned about and why does he make his patrons wear these bands?

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