Stephen and Tiki are both avid runners and they both have an annual budget of $1000 to spend on entering marathons. There are two kinds of marathons, those sponsored by a running organization called Road Rockers (R) and All Others (Y). The price of entering a Road Rocker marathon is $100/marathon and the price of all other marathons is $50/marathon.
a. Draw the budget constraint.
Special #1:
Road Rocker allows you to join a Rockin' Marathon Club, Lap 1. For an annual fee, $400, the price of entering a
marathon is quarter of the original price ($25). In other words, once you have paid Road Rocker $400 dollars, the
price of entering all Road Rocker marathons is: $25. Everyone is eligible to join the Rockin' Marathon Club as long
as they pay the fee and the reduced price is only available to club members.
b. Draw this budget constraint and label is BC #1.
c. Write the equation(s) for the new budget constraint:
d. Is your opportunity cost of a marathon constant along the budget constraint? If not, how does it change?
Special #2:
Road Rocker also offers a second special offer called Rockin' Marathon Club Lap 2. The first 8 marathons are $100,
but for any amount over 8 marathons, the price of an additional marathon is only $10.
e. Draw this budget constraint and label is BC #2.
f. Is your opportunity cost of a marathon constant along the budget constraint? If not, how does it change?
g. Would everyone want to sign up for one of these Specials? Explain.