Choice - (b) If Betty was made better o, how many movies...

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Alfred and Betty are undergraduates. They each have a budget of $90 per quarter to be spent on personal items, including movies, and there is nothing left over at the end of the term. Movies at the local theater cost $3 per person, and they are sufficiently fond of movies that Alfred sees 14 shows per term and Betty sees 8 per term. The movie theater is currently introducing a policy of selling coupon books. Each book will cost $30 and will be good for free entrance to 15 movies. Only one coupon book will be sold to each student, and coupons are not transferable among students. The coupon book are good for a single term. (a) In view of the fact that one has to use at least 10 coupon to break even with the coupon book, and since Betty has only gone to 8 movies a term, can this new option ever make her better off? Why or why not?
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Unformatted text preview: (b) If Betty was made better o, how many movies would you expect her to see? Why? (c) If Betty was not made better o, how many movies would you expect her to see? Why? (d) Alfreds parents are concerned about their sons fondness for movies. They are particularly worried that, under the new policy of coupon books, Alfred may reduce his spending on other goods to watch more movies. Is this likely to occur? Why or why not? (e) Now suppose the theater changes its policy and charges $3 per show for the rst 10 movies seen per term and $2.40 for each additional movie thereafter, without limit. Should Alfreds parents be more or less concerned that he might reduce his spending on all other goods to see more movies? Why? 1...
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This note was uploaded on 08/27/2011 for the course ECON 104 taught by Professor Staff during the Winter '10 term at UCSB.

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