Question

Heather enjoys renting the latest movies from Xfinity. Last month, Heater rented videos at a price of $4 per movie. In order to try and induce customers to rent more movies, Comcast is implementing a new pricing strategy. Starting this month, Comcast will charge $4.50 for the first 6 rentals, but after that, all rentals are only $3.25. What plan does Heather prefer? Will Heather rent more movies under the new pricing? Assume that Heather's income is $80 each month.

Answer 1

Assumption : Heather spends $80 each month on movies

In the fixed pricing scenario, Heather would have rented 20 movies (20=80/4)

Under the new pricing scheme, charges for first 6 movies = 6 * $ 4.50 = $27

Remaining income = $ 80 - $ 27 = $ 53

Using 53 dollars, Heather can rent 16 movies. (53/3.25 = 16.3)

In total, Heather can rent 22 movies under the new scheme (22=6+16)

a) So Heather would prefer second plan of charging $4.50 for first 6 rentals and $3.25 afterwards.

b) Yes, Heather would rent more movies under the new scheme. Earlier she was renting 20. Now she will be able to rent 22.