Businesses often give quantity discounts. Below, you will analyze how such discounts can impact choice sets.
A:
I recently discovered that a local copy service charges our economics department $0.05 per page (or $5 per 100 pages) for the first 10,000 copies in any given month but then reduces the price per page to $0.035 for each additional page up to 100,000 copies and to $0.02 per each page beyond 100,000.
Suppose our department has a monthly overall budget of $5,000.
(a) Putting “pages copied in units of 100” on the horizontal axis and “dollars spent on other goods” on the vertical, illustrate this budget constraint. Carefully label all intercepts and slopes.
(b) Suppose the copy service changes its pricing policy to $0.05 per page for monthly copying up to 20,000 and $0.025 per page for all pages if copying exceeds 20,000 per month.
(c) What is the marginal (or “additional”) cost of the first page copied after 20,000 in part (b)? What is the marginal cost of the first page copied after 20,001 in part (b)?
B:
Write down the mathematical expression for choice sets for each of the scenarios in 2.9A(a) and 2.9A(b) (using x1 to denote “pages copied in units of 100” and x2 to denote “dollars spent on other goods”).