Problem 2. You are the video acquisitions officer for your residence hall. The o

Question

Problem 2. You are the video acquisitions officer for your residence hall. The other officers of your hall will tell you how many videos they would like to rent during the year. Your job is to find the least expensive way of renting the required number of videos. After rescarching the options, you have found that there are three rental plans from which you can choose. Plan A: Pay $3 per video, with no additional fees Plan B: Join the Frequent Viewer Club. Here you pay a yearly mem- bership fce of $50, with an additional charge of $2 for each video rented. Plan C: Join the Very Frequent Viewer Club. In this club you pay a yearly membership fee of $150, with an additional charge of S1 for each video rented. a) Which plan would you select if your instructions are to rent 75 movies a year at the lowest possible cost? b) Which plan would you select if your instructions are to rent 125 movies a year at the lowest possible cost? c) In this exercise, is the number of videos rented endogenous or exogenous? Explain.

Explanation / Answer

Number of Movies Plan1 Plan 2 Plan 3 75 225 200 225 125 375 300 275 a) The table above shows the cost of movies under the three plans.Using the table for 75 movies we willsubscribe to plan 2. b) For 125 movies we will choose the plan 3 as it is least costly among all. c) The number of movies are exogenous variable as the movies are choosen without the knowledge of cost.

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