A prominent online movie rental service mails rental DVDs to consumers. The service offers two pricing plans.
Question:
a. Draw a set of indifference curves for a representative consumer, putting DVD rentals on the horizontal axis.
b. Draw the budget constraint for the a la carte movie rental plan, making sure to indicate the horizontal and vertical intercepts. Find the consumer's optimum quantity of movie rentals. Label this point A.
c. Draw the budget constraint for the flat‐fee plan, making sure to indicate the horizontal and vertical intercepts. Find the consumer's optimum quantity of movie rentals. Label this point B.
d. Under which plan does the consumer rent more movies?
e. Under which plan does the consumer end up with a lower marginal rate of substitution between movies and the composite good?
f. Under which plan is the consumer more likely to end up viewing The Perils of Gwendoline in the Land of the Yik Yak, widely acknowledged to be one of the worst movies of all time?
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Related Book For
Microeconomics
ISBN: 9781464146978
1st Edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson
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