Question

Suppose that only one person in the world sells ice cream. He employs a strange pricing policy: You can buy 1 ice cream cone for $1, but if you buy 2 cones, you have to pay $2 each. If you buy 3, you have to pay $3 each, etc., so that if you buy 10, you have to pay $10 each. You have $100 dollars to spend on ice cream cones and chocolate milk, and chocolate milk costs $1 per unit. Draw your budget constraint. This strange ice cream pricing, where buying more costs you more, is called a quantity surcharge.

Answer 1

Here given that ice cream prices are increasing with increase in quanitity. (Quantity Surcharge)

price of 1 ice cream = $1

price of 2 ice creams = 2 $2 = $4

.......

price of 'n' ice creams = n $n = $n²

Price of each choclate milk = $1

spend on ice cream = (Q_icecream)²

spend on choclate milk = (Q_choc.milk) 1

Total spending = (Q_icecream)² + (Q_choc.milk)

Available amount to spend = $100

Budget Constraint = (Q_icecream)² + (Q_choc.milk) $100

Budget Constraint Graph :