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Willingness to pay

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Instructor-created question Question Help A certain chief executive officer (CEO) with a large corporation instructs her personal secretary (a recent graduate of a prestigious MBA program) to purchase tickets to the Stanley Cup playoffs. Specifically, she tells him, “If the tickets are $150 each, buy one ticket for me; at $100 each, buy two; and, if the price is $50 each, buy me three.” The young secretary (eager to make an impression) responds, “Madame, your instructions appear to be inconsistent. You are saying that you are willing to pay more in total for two tickets than for three!” Is the secretary correct in thinking that the instructions are inconsistent? Explain. [Hint: Sketch the CEO’s demand curve for tickets]

a. Based on the secretary’s statement, the secretary thinks that the CEO is willing to pay dollars in total for two tickets and dollars in total for three tickets.

b. What is the correct way of thinking about the CEO’s willingness to pay? Actually the CEO is willing to pay (maximum) dollars for the first ticket, dollars for the second ticket and dollars for the third ticket. So that, she is willing to pay dollars in total for two tickets and | dollars in total for three tickets which is inconsistent.


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