Credit Cards versus Cash. Consumer a consumer whose marginal benefit of consumin

Question

Credit Cards versus Cash. Consumer a consumer whose marginal benefit of consuming product is mb(x) 120/x, where x is the number of units consumed. The perceived marginal cost is mc (x) a-p, where -1 for cash transactions and -2/3 for a credit-card transaction. The retail price is p 530 and the retailer's marginal cost of the product is c-$25. The retailer pays a 3% fee for each credit-card transaction. The retailer's profit from a cash transaction is [, compared to from a credit-card transaction. Illustrate.

Explanation / Answer

an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. That is, the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come.[1] The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles.[2]

There are infinitely many indifference curves: one passes through each combination. A collection of (selected) indifference curves, illustrated graphically, is referred to as an indifference map.

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