You are the Video Acquisitions Officer for your residence hall. The other officers of your hall will tell you how many videos they would like to rent during the year. Your job is to find the least expensive way of renting the required number of videos. After researching the options, you have found that there are three rental plans from which you can choose.
Plan A: Pay $3 per video, with no additional fees.
Plan B: Join the Frequent Viewer Club. Here you pay a yearly membership fee of $50, with an additional charge of $2 for each video rented.
Plan C: Join the Very Frequent Viewer Club. In this club you pay a yearly membership fee of $150, with an additional charge of $1 for each video rented.
a) Which plan would you select if your instructions are to rent 75 movies a year at the lowest possible cost?
b) Which plan would you select if your instructions are to rent 125 movies a year at the lowest possible cost?
c) In this exercise, is the number of videos rented endogenous or exogenous? Explain.
d) Is the choice of plan (A, B, or C) endogenous or exogenous? Explain.
e) Are total expenditures on videos endogenous or exogenous? Explain.