Reference no: EM131911614

In order to encourage energy conservation, many public utility companies charge consumers a higher rate on units of electricity consumed in excess of some threshold amount. In contrast, a common marketing ploy by other firms is to offer "quantity discounts" to consumers who purchase large quantities of a good. To illustrate how these pricing schemes alter the typical consumer's opportunity set, suppose income = $100, P_x = $2 if the consumer buys less than 40 units of X, P_x = $3 if the consumer buys more than 40 units of X, and P_y = $5. Draw the budget constraint. How would the budget constraint change if the price decreased to $1 after 40 units of X were consumed?