Chapter 2 Tutorial 2

Happy Corporation is a producer of good X, which is a medicinal hair tonic that claims to restore the crowning glory in man experiencing hair loss. The company is aware that usage of the tonic up to quantity XH per month is effective, but usage beyond that is considered excessive and may cause unwanted hair growth in other parts of the body. It therefore provides an option for its users by reducing the price of X to promote its usage up to XH per month and increasing its price sharply thereafter to discourage its usage.

a) In a world of two goods (X and Y), draw the budget lines confronting Happy Corporation’s clients before the option.

b) Draw the budget lines confronting Happy Corporation’s clients after the option.

c) Would all users take up the option?

Dear Viewers! I don’t mean to be a nag but… PLEASE ATTEMPT THE QUESTION BEFORE VIEWING THE SOLUTION!!!!!! Thank you! 🙂

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