=+8.4 Business Application: Merchandise Exchange Policies: Suppose you have $200 in discretionary income that you would like to spend on ABBA CDs and Arnold Schwarzenegger DVDs.

A. On the way to work, you take your $200 to Walmart and buy 10 CDs and 5 DVDs at CD prices of $10 and DVD prices of $20.

a. On a graph with DVDs on the horizontal and CDs on the vertical, illustrate your budget constraint and your optimal bundle A.

b. On the way home, you drive by the same Walmart and see a big sign: “All DVDs half price—

only $10!” You also know that Walmart has a policy of either refunding returned items for the price at which they were bought if you provide them with a Walmart receipt or, alternatively, giving store credit in the amount that those items are currently priced in the store if you have lost your receipt.5