1.7. Many retail video stores offer two alternative plans for renting films: A two-part tariff: Pay...

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1.7. Many retail video stores offer two alternative plans for renting films:

• A two-part tariff: Pay an annual membership fee (e.g., $40) and then pay a small fee for the daily rental of each film (e.g., $2 per film per day).

• A straight rental fee: Pay no membership fee, but pay a higher daily rental fee (e.g., $4 per film per day).

What is the logic behind the two-part tariff in this case? Why offer the customer a choice of two plans rather than simply a two-part tariff?

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Microeconomics

ISBN: 9780132080231

7th Edition

Authors: Robert S. Pindyck, Daniel L. Rubinfeld

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