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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Question
Chapter 4, Problem 17PAA
To determine
The graphical representation of budget set when a company offers a frequent buyer program.
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Question 6
A consumer spends all of her income on two goods, coffee and doughnuts. She buys coffee at 25 cents per unit with a total utility of 800 and a marginal utility of 12. Doughnuts are purchased at 75 cents a unit with a total utility of 200 and a marginal utility of 24. To increase her total utility, the consumer should: Buy more coffee and less doughnuts Buy more of both goods Do nothing. She is currently maximizing utility with her limited budget. Buy less of both goods Buy more doughnuts and less coffee.
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.
The Einstein Bagel Corp. offers 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. Does Einstein's frequent buyer
program have the same effect on the consumption of its
bagels that would occur if it simply lowered the price of
one dozen bagels by 3 percent? Explain graphically. Initial
Budget Line Budget Line with 3% discount Budge line
with frequent buyer program Do not need to have the
calculations, show graphically Income spent on other
goods on vertical axis of graph, Quantity of Bagels
[dozens] on horizontal axis of graph
Chapter 4 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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