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Let us now assume that individuals do not have quasilinear preferences. Instead, you are working for Netflix as a young economist and have discovered that
Let us now assume that individuals do not have quasilinear preferences. Instead, you are working for Netflix as a young economist and have discovered that consumers view Netflix movies and Everything Else as perfect complements. Unfortunately, you are not sure the exact ratio at which consumers consume the goods. In other words, you do not know if consumers need 2 Netflix movies and 3 Everything Elses to have a useful group or 3 Netflix movies and 1 Everything Else, etc. Your boss walks up to you and says: "Hello, new economist! In a specific test market, we offered the following three pricing plans: ' Plan 1: Consumers face a flat $10 fee each month, and can rent as many DVD's as they wish for free. ' Plan 2: Consumers can rent DVD's for a price of $2 each. ' Plan 3: Consumers pay a flat $5 fee each month, and can then rent movies for $1 apiece. Our marketing team iust got back to me and told me that Plan 3 was not selected very often, but I am not convinced. I am debating rolling Plan 3 out nationally, but that will cost quite a bit. What do you think I should do?\
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