Currently, if you join Disney’s movie club club, you get 5 DVDs for $1 each, but you have to commit to buying at least 4 more DVDs at $20 each over the next year. Suppose the normal market price of a DVD is $16.
a. Construct two budget constraints: one for a consumer who joins Disney’s movie club and another for a consumer who doesn’t. Assume that both consumers have $112 worth of income. Place income on the vertical axis just like in Figure 25.12.
b. What kind of consumer is likely to get more utility from joining Disney’s movie club? What kind of consumer would not?
c. If Disney’s movie club wanted to charge an additional membership fee to generate more revenue, what would be the maximum they could charge for membership?