N16-cost curves jpw

# N16-cost curves jpw - End of Consumer Theory and onto...

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microL16-F20109-page http://www.arts.cornell.edu/econ/wissink/econ1110jpw/ End of Consumer Theory and onto. . Lecture 16 Dr. Jennifer P. Wissink ©2009 John M. Abowd and Jennifer P. Wissink, all rights reserved. October 20,2010

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microL16-F20109-page http://www.arts.cornell.edu/econ/wissink/econ1110jpw/ Announcements: Micro F2010 MEL REMINDER Quiz#06 and ToCatchUpQuiz#01 due soon, check the MEL site. Will post the next set of quizzes before the weekend. Prelim 2 It’s just around the corner! Yikes!! Thursday Nov 4 (5:15pm or 7:30pm) Friday Nov 5, AFTERNOON this time @ 3pm PELASE SEE THE SYLLABUS ON THE WEB PAGE FOR WHAT TO DO IF YOU HAVE CONFLICTS.
microL16-F20109-page http://www.arts.cornell.edu/econ/wissink/econ1110jpw/ Application #4: Two-Part Tariffs (Sam’s Club Example) Suppose: I = \$2,000. P X = \$10 and P Y = \$10. Initially: X* =100 and Y* =100. Perfectly competitive firms sell Y . Sam’s Club has a monopoly (only seller) on X. Average total cost to make units of X for Sam’s Club is constant and equal to \$5.

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microL16-F20109-page http://www.arts.cornell.edu/econ/wissink/econ1110jpw/ Sam’s “deal”: Pay \$200 to join Sam’s Club then P X = \$8. P Y is still \$10 and Income is still \$2,000. Note: you could still afford the old bundle: – Original bundle: X* old =100 and Y* old = 100 Budget constraint: \$2,000=\$200+\$800+\$1,000. Question: Will the consumer and Sam be better off? Application #4: Two-Part Tariffs (Sam’s Club Example)
microL16-F20109-page http://www.arts.cornell.edu/econ/wissink/econ1110jpw/ X Y BL 0 IC 0 X* old=100 200 200 Application #4: Two-Part Tariffs (Sam’s Club Example) Y* old=100

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microL16-F20109-page http://www.arts.cornell.edu/econ/wissink/econ1110jpw/ Consumer is on higher indifference curve Sam’s Club makes more profit: π old = (\$10-\$5)100 = \$500 new = \$200 + (\$8-\$5) X new Is new - old > 0? Is \$200 + \$3 X new - \$500 > 0? Is \$3 X new > \$300? Is X new > \$100? Yes. Since X new > 100 there is more profit! Q.E.D. X Y BL 0 BL N IC 0 IC new X* old X* new 200 200 Application #4: Two-Part Tariffs (Sam’s Club Example)
microL16-F20109-page http://www.arts.cornell.edu/econ/wissink/econ1110jpw/ Application #5: The Odd Case of Labor/Leisure and “All-Other-Goods” and Why Offer Overtime Wages?

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N16-cost curves jpw - End of Consumer Theory and onto...

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