Question

There are 40 episodes of a new TV show on Netflix that you want to watch before they expire at the end of next week. You are trying to decide how many episodes to watch this week and how many to watch next week. Your weekly demand for episodes is P=150-Q and the marginal cost of watching an episode is 6. Your weekly discount rate is 10%. a. How many episodes should you watch this week? How many should you watch next week? Draw a picture that shows this outcome on a single graph. b. What is your net benefit of the marginal episode this week? What is your net benefit of the marginal episode next week? How are these two values related? c. If your discount rate was 0% how many episodes would you watch this week? How many would you watch next week? d. You have an exam this week that raises the marginal cost of watching an episode to 10 (the marginal cost next week stays at 6). How many episodes should you watch this week? How many should you watch next week? The price of Appalachian coal is currently $80 per ton. filtha dienannt rate ie what do we expect the price of coal to be next year?

Answer 1

a)

-Joc given MC (Marginal cost) = P: 15-O 6 - Jol Assuming perfect competition MC MR 4.5. Oty TR= Total revenue = Q = (15-0) Q MR= d TR = 15- 20 This week at eg. 15-20 = 6 or MR =MC 20=9 (0 = 4.5

and for next week

TO This wack Nextweek ked K = 15-20 at eq. 15-20 = 6 or MR = MC 20 = 9 (@= 4.5 with 107. discount Prew = Poid (1-10 ) = (150-0x90 = 13-5 -0.90 (Total Revenue new) TR = Prew & = 13. 50 -0.90 MR = d TR = 13.5 - 1.80 at e q new MR=MC on 13.5 -1.80 = 6 1.80 = 7.5 (o= 4.167

b) the prices drop by 10 percent consistently in consecutive weeks, giving the buyers a cheaper buying opportunity.

c) the same amount would be paid and no change in marginal revenue would be seen.

d) number of episodes this week= (6/16 ) * 40 = 15 episodes (as you would prefer watching more videos when marginal cost is less i.e in second week)

number of episodes in next week= (10/16 ) * 40 = 25