Managerial Economics MBA 603-Homework 3-with verified answers-2022
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Exercise 1. A consumer has a choice of spending $20,000 on a Honda or $14,000 on a Kia. She was observed buying a Kia during the weekend. Does this mean the consumer prefers the Kia to the Honda? Expl... ain your answer. Answer: This looks like the consumer has a budget constraint and there is an indifferent curve as well. The consumer seems like he or she indifferent about Kia and Honda. Since there is a budget constraint, he/she can only afford Kia which is $14,000. There is a customer equilibrium, the customer can find satisfaction if he/she buys Kia. Furthermore, the customer will be able to save $6,000 and may use that money on other goods. Exercise 2. In order to encourage energy conservation, many public utility companies charge consumers a higher rate on units of electricity consumed in excess of some threshold amount. In contrast, a common practice by other firms is to offer “quantity discounts” to consumers who purchase large quantities of a good. Suppose income is $100, PX = $2 if the consumer buys less than 40 units of X, and PY = $5. A. For the energy case, assume PX = $3 if the consumer buys more than 40 units of X Answer: CONTINUED........ [Show More]
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