Since p mc is always equal to 0 without any revenue

This preview shows page 28 - 30 out of 30 pages.

32.How to find the optimum?
Similar Past Exam Question Compare: Question 1: A consumer has a utility function for cable movies given by the following function: U = 18X - 2X3/2, for X ≤ 36Where X is the number of cable movies viewed per month and U is measured in dollars. a). If the price of pay-per-view cable movies is set at $3 per movie, the number of cable movies purchased by this consumer each month will be:
b). If, instead, the price of pay-per-view cable movies is set at $9 per movie, the consumer surplus gained by this consumer each month through purchasing cable movies (to the nearest dollar) will be:
c). Imagine that the cable company is trying to boost sales. It offers this consumer the following alternative to a price of $9 per movie: the consumer would pay no per movie fee, but instead would pay a monthly access charge that would permit the consumer to view as many movies as he or she liked, at no additional charge. The maximum monthly access charge that this consumer would be willing to pay (to the nearest dollar, as an alternative to the $9 per movie fee) would be:
d). Now forget about the all-inclusive fee and return to the situation in which the consumer is charged a price of $9 per movie. Suppose that the government imposes a tax of $9 per unit on this good, and that the effect of the tax falls entirely on consumers (so that the price paid by consumers rises to $18). Considering only this consumer, the deadweight loss associated with such a tax (to the nearest dollar) would be:

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture