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Problem Set 2

# Problem Set 2 - Problem Set#2 For Class Discussion Marlon...

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Problem Set #2 For Class Discussion Marlon has a daily income of \$10 and consumes only beer and pizza. Local pizza parlors offer generic beer at \$1 per pint. His friends have strong likes and dislikes for the pizza offered by competing brands, but Marlon considers the various brands to be perfect substitutes. The usual price of pizza is a dollar per slice, but Marlon is vigilant about watching for specials. On Mondays and Tuesdays, Luigi’s offers a 50% pizza discount for \$3. Marcella’s offers “all-you-can-eat” for \$5 on Wednesdays and Thursdays. On weekends, when discounts are rarely offered, Marlon goes wherever his friends go, buying 5 slices and 5 pints. He has dinner with his girlfriend (Marlene) one night during midweek (Marlene pays for her own dinner, of course). a. Explain the effect of each discount policy upon Marlon’s budget constraint. Use a full page graph to illustrate three budget constraints. b. Last week, Marlon went to Luigi’s on Monday and Wednesday and to Marcella’s on Tuesday and Thursday. Use indifference curves to illustrate Marlon’s choices. c. Discuss your positioning of the indifference curves. That is, be specific about what you can and cannot prove. For example: When was his date with Marlene? When did he eat the least pizza? When did he eat the most pizza? When was he happiest?

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