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 marketing ploy by other firms is to offer "quantity discounts" to consumers who purchase large quantities of a good. To illustrate how these pricing schemes alter the typical consumer's opportunity set, suppose income = $100, Px = $2 if the consumer buys less than 40 units of X, Px = $3 if the consumer buys more than 40 units of X, and Py = $5. Draw the budget constraint. How would the budget constraint change if the price decreased to $1 after 40 units of X were consumed?
1 answer:
Answer:
ATTACHED ANSWER
Explanation:
The budget constrain will show all the possible consumption considering the price of both product X and product Y
We have to calculate at X = 0 X = 40 and Y = 0
if X = 0 this means we don't buy any product X so is all used to purchase Y 100/5 = 20 units
at 40 units of X we got 40 x 2 = 80 dollars leaving 20 for Y therefore 20/5 = 4
At X = 40 and Y = 4 we find the other budget constrain
Last if Y = 0
if the mass consumption of X is penalized we consume 20/3 = 6.67 more units leading to 46.67
while if it is encourage we consume 20/1 = 20 more units
leading to 60 units in total
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