Ashley them expresses the proportion, which each good

Ashley has a brother named ‘Nathan’ who runs a
local restaurant, therefore he purchases both Cases of Coca-Cola as well as
Cases of Pepsi, in which are supplies for his restaurant. Nathan perceives two
goods as complementary as Good X would withhold little to no value when
consumed alone, however when combined with good Y, would increase overall value
of the offering. In Figure 3,
we can see that the elbows are collinear, and the budget constraint crossing
them expresses the proportion, which each good needs to increase so that there is
an increase in the utility. Figure 3 therefore shows Nathans best
bundle, which will give him maximum utility. Nathan has an income of £50 a
week, the optimal point of utility is illustrated on the Figure 3, where the
highest point the indifference curve is interchanged with the budget constraint.
At that point, he will have 6 units of ‘Cases of Coca-Cola’ and 6 units of
‘Cases of Pepsi’, this shall thereby use £45 of his budget, with a remainder of
£5. There is a remainder of money due to the fact that both goods are
non-separable, meaning he cannot purchase all bundles of goods that will
maximise his budget. It is important to add that, the 20% discount will not be
applied to the Cases of Pepsi due to the goods being perfectly complimentary.

 

In conclusion, a consumer acting upon
a rational basis would be enticed by the 20% discount offered on ‘Cases of
Pepsi’. This is understandable as a rational consumer’s objective will be to
maximise their utility. These offers also aid companies in increasing their
share in the market and hence their profits because consumers will be more
inclined to purchase Pepsi brand soda, rather than substitute companies selling
the same product at the full price. However, the only issue with this theory is
that not all consumers act with ration in reality, thereby a discount could
lead to a price inelasticity of demand, resulting in the offer being a failure
to the company.

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