A health club offers two different plans for its visitors. Under plan A, no membership is required and each visit costs $10. Under plan B, an annual fee of $200 is paid to become a member and each visit costs only $4. It also sells beverages at a unit price of $10. Visits to the health club -v- and beverage consumption -b- can be considered as being perfect complements. Let the preferences of a customer be given by: U(v, b) = { min v, (5/2)b } What plan would such a customer choose if he is maximizing his utility? Determine the optimal consumption levels v* and b*

A health club offers two different plans for its visitors. Under plan A, no membership is required and each visit costs $10. Under plan B, an annual fee of $200 is paid to become a member and each visit costs only $4. It also sells beverages at a unit price of $10. Visits to the health club -v- and beverage consumption -b- can be considered as being perfect complements. Let the preferences of a customer be given by: U(v, b) = { min v, (5/2)b } What plan would such a customer choose if he is maximizing his utility? Determine the optimal consumption levels v* and b*

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter10: Consumer Choice Theory

Section: Chapter Questions

Problem 1P

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