TAILIEUCHUNG - Microeconomics for MBAs 29

Microeconomics for MBAs 29. The Economic Way of Thinking for Managers. Microeconomics for MBAs develops the economic way of thinking through problems that MBA students will find relevant to their career goals. Maths is kept simple and the theory is illustrated with real-life scenarios | Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 27 reflected by the budget constraint segment Ya then the consumer can buy additional units of good X at the much lower price indicated by the segment aX of the budget constraint. Faced with such a pricing policy the consumer will be willing to sacrifice Y - Y1 units of good Y to buy X2 units thereby dissipating all of the consumer Figure . Two-Part Pricing A uniform price can lead the individual to buy Y2 and X2. However a two-part price can lead the individual to buy the same amount of X while reducing the purchases of Y to T1 leaving the consumer on a lower utility curve and the seller with more income. Two-part pricing strategies in the real world are not usually calibrated accurately enough to capture an individual s entire consumer surplus. Also the same two-part pricing policy normally applies to everyone even though preferences - and therefore indifference curves - vary from consumer to consumer. Thus any given two-part pricing strategy will capture more consumer surplus from some than from others. However such a strategy generally allows suppliers to motivate consumers to pay more for a given quantity of a good than they would under a uniform pricing policy. Given the advantage that suppliers can realize from a two-part pricing strategy it is not surprising that different variations of such pricing strategies are often encountered. For example suppliers of electricity almost universally employ at least a two-part pricing schedule so that the first few kilowatts of power used during the billing period cost the consumer more than subsequent kilowatts. A variation on two-part pricing is the membership fee - an initial charge that entitles the consumer to purchase a product at a lower price. As shown in Figure this produces the same effect as straight two-part pricing. Assume that on paying an initial fee of Y - Y the consumer can buy all the units of X desired at the .

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