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Sometimes, our discussion of marginal cost and marginal revenue unintentionally hides the real issue: the entrepreneur's quest to maximize total...

Chapter 25:

6. In this chapter, we focused a lot on budget constraints, but time is an additional constraint that consumers face. Jackson has $40 per week to spend on leisure activities. He likes to bowl and to play racquetball. Bowling costs $4 per game, and a day pass to the racquet club costs $8. Jackson only has 7 hours of leisure time per week, and both bowling and racquetball each take 1 hour per game. Construct Jackson’s budget constraint and his time constraint on the same diagram. Consider each of the consumption bundles following that could possibly be Jackson’s utility-maximizing bundle. How does each of these bundles relate to Jackson’s two constraints?

  1. Bowling twice per week and playing racquetball four times per week
  2. Bowling four times per week and playing racquetball three times per week
  3. Bowling six times per week and playing racquetball once per week

Chapter 14:

1. Subway, the fast-food chain, sells foot-long sandwiches for $5 each. However, Subway still sells 6-inch sandwiches for considerably more than $2.50 each, that is, at a higher price per inch of sub.

  1. Can you think of a way that in theory you could make money from Subway’s pricing practices? Would this method work in practice? What does this tell you about the limits of arbitrage?
  2. In many of our price discrimination examples, we think that businesses try to break customers into two groups: more price-sensitive and less price-sensitive. What kinds of Subway customers fit into the first group? Into the second?

Busy lawyers with 20-minute lunches

College students

Health-conscious soccer moms

Long-haul truck drivers

4. As we saw in this chapter, drug companies often charge much more for the same drug in the United States than in other countries. Congress often considers passing laws to make it easier to import drugs from these low-price countries (it also considers passing laws to make it illegal to import these drugs, but that’s another story).

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