Author Question: A reduction in the price charged for luncheon specials by a downtown cafeteria will A) affect the ... (Read 31 times)

TFauchery · **on:** Jun 29, 2018

A reduction in the price charged for luncheon specials by a downtown cafeteria will

A) affect the demand (curve) for that cafeteria's luncheons if its competitors react.
B) have no effect on the demand for lunch at other downtown restaurants.
C) increase the cafeteria's gross revenue from lunch business.
D) increase the cafeteria's net revenue from lunch business if the demand is elastic.
E) increase the cafeteria's net revenue from lunch business if the demand is inelastic.

Question 2

Consider two individuals, Kevin and Harris, who discount delayed utilities with a weight of 1/2 and 3/4, respectively.

a) Who between the two individuals gives more weight to things that happen in the future?
b) If consuming ice cream gives both Kevin and Harris benefits worth 8 utils instantly and has delayed costs of 15 utils, then comment on whether both individuals will want to consume ice cream.
c) If the nearby ice cream parlor is closed for a week, will Kevin and Harris prefer to eat ice cream after a week, given that they have to decide today?

makaylafy · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A

Answer to Question 2

a) The greater the discount weight of an individual, the more importance he gives to things that happen in the future. In this case, Harris has a discount weight of 3/4 while Kevin has a discount weight of 1/2. Therefore, Harris gives more weight to things that happen in the future.

b) The net benefit that Kevin will derive from consuming ice cream = 8 - 1/2(15 ) = 8 -7.5 = 0.5. Because the net benefit is positive, Kevin will want to consume ice cream.
The net benefit that Harris will derive from consuming ice cream = 8 - 3/4(15 ) = -3.25. Because the net benefit is negative, Harris will not want to consume ice cream.

c) If the consumption of ice cream is delayed by a week, the benefit the individuals receive from consumption will also have to be discounted.
Kevin's net benefit from consuming ice cream after a week = 1/2(8 - 15 ) = -3.5. Therefore, Kevin will decide not to consume ice cream after a week.
Harris's net benefit from consuming ice cream after a week = 3/4(8 - 15 ) = -5.25. Therefore, Harris will decide not to consume ice cream after a week.