Scenario 17-5 Assume That a Local Bank Sells Two Services, Checking Accounts

question 204

Multiple Choice

Scenario 17-5
Assume that a local bank sells two services, checking accounts and ATM card services. The bank's only two customers are Mr. Donethat and Ms. Beenthere. Mr. Donethat is willing to pay $8 a month for the bank to service his checking account and $2 a month for unlimited use of his ATM card. Ms. Beenthere is willing to pay only $5 for a checking account, but is willing to pay $9 for unlimited use of her ATM card. Assume that the bank can provide each of these services at zero marginal cost.
-Refer to Scenario 17-5.If the bank is unable to use tying,what is the profit-maximizing price to charge for unlimited use of an ATM card?

• A) $14
• B) $11
• C) $9
• D) $2

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Definitions:

Perfect Substitutes

Goods or services that can be used in exactly the same way and to the same extent, where one can completely replace the other in consumption.

Income Effect

The alteration in income for a person or the economy and the resulting influence on the demand for a certain good or service.

Substitution Effect

The economic principle indicating how consumers react to a change in price by substituting a more expensive item with a cheaper alternative.

Price

The total money demanded to secure a good or service.