// LabInfoTypesIndiffSpecs.txt. 8/14/2021. import Foundation class LabInfoTypesIndiffSpecs { strInformationTypesSpecs let strInfoTypesIndiffSpecs :String = """ `` Lab Specs // Sliders 1 10 1 4 // 0: Low type - Utility function offset 1 10 1 4 // 1: High type - Utility function offset .2 .8 .1 .2 // 2: Low type - Utility function alpha .2 .8 .1 .4 // 3: High type - Utility function alpha .5 1.5 .1 1.0 // 4: Low type - Utility elast of sub .5 1.5 .1 1.0 // 5: High type - Utility elast of sub 20.00 60.00 10.00 60.00 // 6: Low type - Income 20.00 60.00 10.00 60.00 // 7: High type - Income 0 45 1 10 // 8: Low type - Quantity offered 0 45 2 35 // 9: High type - Quantity offered .25 2.00 .25 .50 // 10: Marginal cost 0.00 60.00 1.00 10.00 // 11: Large size Price - Only relevant for asymmetric info // Graph specs 0 0 41 60 // 12: Graph data range Cup_Size_(oz) Composite_Good_(Other_Goods) // 13: Graph axis names `` Prob specs ` Problem 0 Start Screen 1 - One Consumer Model: The Basics // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither N N N N N N N L // 1: Consumer Specs: Low Type and High Type - Offset Alpha ElastOfSub Income L // 2: Marginal and Average Total Cost N L B // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information F F // 4: Visibility T T // 5: Enable // Default Mode F // 6: Default Mode - F:Full information, A:Asymmetic, I:Instruction // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility H // 8: Default - L:Low type H:High type // Graph Curves and Surplus Arrows F F T // 9: LowDemandCurve HighDemandCurve MC T T T T // 10: Surplus Arrows - TR TC Prof Other Other // 11: Select no arrow // Initial cup sizes and Large cup price (price only relevant for asymmetric info) 0 30 40 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `RED`BLDObjective:`BLD Introduce the basics of the model in the context of a coffee house like Starbucks.`BLK Suppose that Starbucks is a monopoly, there are no other coffee houses in the vicinity. Note that Starbucks does not sell coffee by the ounce; instead it only sells coffee by the cup. The customer can only choose a cup size that Starbucks offers. Starbucks determines the size of the available cups. Starbucks must make two decisions: `0x2022 What cup size should it sell? `0x2022 How much to charge for a cup? The cup size is depicted on the horizontal axis of the diagram. We begin by considering a single consumer who frequents Starbucks to purchase coffee. We assume that the consumer's income is $60.00 as reported in the upper right hand corner of the screen. The income is spent on coffee and other goods. All other goods are represented by the composite good which is represented on the vertical axis of the diagram. Also, let the composite good be the numeraire. Note that the consumer's income is represented by the green bundle on the composite axis. Since the composite good the numeraire, the price of a cup of coffee, the cup price, is expressed in terms of the composite good. By default, Starbucks initially sells a 30 ounce cup for $40.00. The consumer has $20.00 remaining to purchase other goods. This is represented by the black bundle on the graph: `0x25E6 30 ounces of coffee `0x25E6 20 units of the composite good Next, focus on Starbucks. More specifically, when Starbucks sells a cup of coffee, how much `0x2022 revenue will it receive? `0x2022 cost will it incur? `0x2022 profit will it earn? `BLDQuestion:`BLD How much revenue does Starbucks receive from the sale of the cup? `BLDAnswer:`BLD $40.00. The explanation is trivial. Since Starbucks sells the cup for $40.00, it receieves $40.00 of revenue. Click the Rev checkbox above the diagram to confirm this. The red double arrow line in the diagram illustrates the revenue. `BLDQuestion:`BLD How much cost does Starbucks incur from the production of the 30 ounce cup? `BLDAnswer:`BLD The per ounce cost of producing coffee is $.50. Therefore the cost Starbucks incurs just equals $.50 times the size of the cup; that is, Cost = .50 x 30.00 = 15.00 We can illustrate cost on the diagram by selecting the Cost checkbox above the diagram. Note that the slope of the blue line passing through the black bundle equals the negative of the per ounce cost of producing coffee, .50. `BLDQuestion:`BLD Why does the blue double arrow line illustrate the cost of producing a 30 ounce cup of coffee? `BLDHint:`BLD Remember the slope of the blue line, -.50, equals the negative of the per ounce of coffee, .50. `BLDQuestion:`BLD How much profit does Starbucks earn from the cup? `BLDAnswer:`BLD $25.00, the revenue less the cost; that is, Profit = 40.00 - 15.00 = 25.00. Illustrate this by selecting the Prof checkbox above the diagram. Observe that the green double line equals Starbucks' profit. The scrollbar to the left of the graph allows you to vary the price. By selected the various check boxes and varying the price. Observe how changing the price affects the other goods consumed, revenue, cost, and profit. ` Prob End ` Problem 1 Start Screen 2 - One Consumer Model: Starbucks' Price Decision // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither N N N N N N N L // 1: Consumer Specs: Low Type and High Type - Offset Alpha ElastOfSub Income L // 2: Marginal and Average Total Cost N L B // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information F F // 4: Visibility T T // 5: Enable // Default Mode F // 6: Default Mode - F:Full information, A:Asymmetic, I:Instruction // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility H // 8: Default - L:Low type H:High type // Graph Curves and Surplus Arrows F T T // 9: LowDemandCurve HighDemandCurve MC T T T T // 10: Surplus Arrows - TR TC Prof Other Other // 11: Select no arrow // Initial cup sizes and Large cup price (price only relevant for asymmetric info) 0 30 40 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `RED`BLDObjective:`BLD Determine the price Starbucks will charge for a given cup size.`BLK Again we consider a single consumer. The consumer's utility depends on the consumption of coffee as measure in ounces and the other goods, the composite good: Utility = U(X, Y) X = Ounces of coffee Y = Composite good (all other goods) Recall that Starbucks must make two decisions: `0x2022 What cup size should it sell? `0x2022 What price should it charge for a cup? We begin by focusing on the price by assuming that Starbucks only offers a 30 ounce cup of coffee as depicted on the diagram. Starbucks initially sells a 30 ounce cup for $40.00. The consumer has $20.00 remaining to purchase other goods. This is represented by the black bundle on the graph: `0x25E6 30 ounces of coffee. `0x25E6 20 units of the composite good. Next, note that the consumer always has the option of buying no coffee by spending all $60.00 of income on the composite good. Since the composite good is the numeraire, the consumer purchases 60 units of the composite good. The no coffee option is illustrated on the diagram by the red bundle on the vertical axis. The thick red line passing through the red no coffee bundle is no coffee indiffernce curve. The no coffee bundle generates 182 units of utility for the consumer as reported on the diagram. The consumer has two options: `RED`0x2022 `REDRed bundle - No coffee option: `0x25E6 0 ounces of coffee. `0x25E6 60 units of the composite good. `BLK`0x2022 Black bundle - 30 ounce cup of coffee for $40.00: `0x25E6 30 ounces of coffee. `0x25E6 20 units of the composite good. The utilities generated by each of these two options are reported on the diagram: `RED`0x2022 Red bundle - No coffee option: Utility = 182. `BLK`0x2022 Black bundle - 30 ounce cup: Utility = 336. `BLDQuestion:`BLD When the price of a 30 ounce cup of coffee is $40.00, will the consumer buy a cup of coffee? Explain. Next, focus on Starbucks. `BLDQuestion:`BLD Would Starbucks be content charging $40.00 for a 30 ounce cup of coffee? `BLDAnswer:`BLD No. To understand why, select the Prof checkbox and slowly increase the cup price by sliding the vertical Cup Price scrollbar up. The consumer's black bundle moves down indicating that the consumer has less to spend on other goods. As long as the consumer's black bundle lies above the indifference curve: `0x2022 The consumer buys the cup. `0x2022 Starbucks profit increases. `BLDQuestion:`BLD What happens when the consumer's black bundle falls below the no coffee indifference curve? To answer this question continue to increase the price by sliding the Cup Price scrollbar up. `BLDAnswer:`BLD The consumer no longer buys the cup, the consumer switches to the no coffee option. Starbucks earns no profit. Explain. The indifference curve passing through the no cup option, the red no coffee indifference curve, is critical. It determines the consumer's buy/no buy coffee decision. We can think of the no coffee indifference curve as establishing the buy/no buy threshold price. When Starbucks charges a price `0x2022 below the threshold: consumer buys cup. `0x2022 above the threshold: consumer doesn't buy cup. `BLDProfit Maximization:`BLD To maximize profit, Starbucks will increase the price until it reaches the threshold price. When the price equals the threshold price, the consumer's black bundle lies on the no coffee indifference curve. There is no reason for the consumer to switch to the no coffee option (and we will assume that the consumer will continue to buy the cup of coffee). `BLDConclusion:`BLD The consumer's no coffee indifference curve is critical. This indifference curve determines the buy/no buy threshold price. To maximize profit, Starbucks will always charge the threshold price, the price that results in the consumer's black bundle lying on the no coffee indifference curve. ` Prob End ` Problem 2 Start Screen 3 - One Consumer Model: Starbucks' Cup Size Decision // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither N N N N N N N L // 1: Consumer Specs: Low Type and High Type - Offset Alpha ElastOfSub Income L // 2: Marginal and Average Total Cost N B N // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information F F // 4: Visibility T T // 5: Enable // Default Mode F // 6: Default Mode - F:Full information, A:Asymmetic, I:Instruction // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility H // 8: Default - L:Low type H:High type // Graph Curves and Surplus Arrows F T T // 9: LowDemandCurve HighDemandCurve MC T T T T // 10: Surplus Arrows - TR TC Prof ConSur X // 11: Select no arrow // Initial cup sizes and Large cup price (price only relevant for asymmetric info) 4 30 40 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `REDObjective: Illustrate Starbucks' profit maximizing combination of cup size and cup price.`BLK Recall that Starbucks must make two decisions: `0x2022 What cup size should it sell? `0x2022 What price should it charge for a cup? Also, recall what we learned from the previous screen: `IND`BLDReview:`BLD The consumer's no coffee indifference curve is critical. This indifference curve determines the buy/no buy threshold price. To maximize profit, Starbucks will always charge the threshold price, the price that results in the consumer's black bundle lying on the no coffee indifference curve. `INDConsequently, the simulation will now automatically adjust the price so that the consumer's bundle lies on the no coffee indifference curve for every specification of the cup size. Focus on the horizontal Cup Size scrollbar lying below the diagram. Vary the cup size to observe how the price changes so as to keep the consumer's bundle on the no coffee indifference curve. Illustrate Starbucks' profit by clicking the Prof checkbox above the graph. Once again use the Cup Size scrollbar to vary the cup size. `BLDQuestion:`BLD What cup size maximizes Starbucks' profit? `BLDQuestion:`BLD When Starbucks maximizes profit how is the per ounce cost of coffee related to the consumer's marginal rate of substitution (MRS)? Explain. `BLDSummary:`BLD When Starbucks maximizes profit: `0x2022 price equals the threshold price. `0x2022 MRS equals coffee's per ounce cost. ` Prob End ` Problem 3 Start Screen 4 - Two Consumer Model: Introduction // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither N N N N N N N N // 1: Consumer Specs - Offset Alpha ElastOfSub Income N // 2: Marginal and Average Total Cost N N N // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information F F // 4: Visibility F F // 5: Enable F // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility L // 8: Default - L:Low type H:High type // Graph Curves and Surplus Arrows T T F // 9: LowIndiffCurve HighIndiffCurve MC F F F F // 10: Surplus Arrows - TR TC Prof ConSur XX // 11: Select no arrow // Initial cup sizes and Large cup price (price only relevant for asymmetric info) 8 16 3.00 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `RED`BLDObjective:`BLD Explain the basics of the two consumer model.`BLK For purposes of exposition, assume that Starbucks has only two customers: `0x2022 Coffee lover. `0x2022 Coffee fanatic. For simplicity, both consumers have the same income, $60.00. The no coffee indifference curve of each consumer appears on the diagram. The coffee lover's is purple and the coffee fanatic's red. `BLDQuestion:`BLD Why does the coffee fanatic's no coffee indifference curve lie below the coffee lover's? `BLDAnswer:`BLD For any given cup size, the coffee fanatic is willing to forego more other goods for a cup of coffee than the coffee lover. We will consider two different information scenarios: `0x2022 Full information `0x2022 Asymmetric information `BLDFull Information:`BLD Starbucks knows the type of its consumers before the sale. Therefore it can sell one size exclusively to the coffee lover and another size exclusively to the coffee fanatic. Starbucks chooses the cup size for the customer, the customer has no choice. `BLDAsymmetric Information:`BLD Starbucks does not know the type of its customers. It offers both sizes to each customer and then the customer chooses which size to buy. First, we consider full information. ` Prob End ` Problem 4 Start Screen 5 - Full Information Solution // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither N N N L N N N L // 1: Consumer Specs: Low Type and High Type - Offset Alpha ElastOfSub Income L // 2: Marginal and Average Total Cost B B N // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information T F // 4: Visibility T T // 5: Enable F // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility H // 8: Default - L:Low type H:High type // Graph Curves and Surplus Arrows T T T // 9: LowDemandCurve HighDemandCurve MC F F F F // 10: Surplus Arrows - TR TC Prof ConSur XX // 11: Select no arrow // Initial cup sizes and Large cup price (price only relevant for asymmetric info) 4 12 12 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `REDObjective: Illustrate the full information solution.`BLK `BLDReview:`BLD When Starbucks maximizes profit: `0x2022 price equals the threshold price. `0x2022 MRS equals coffee's per ounce cost. First, focus on the coffee lover. Adjust the Small Cup Size scrollbar beneath the graph to find the cup size that maximizes the firm's profit from its sales to the coffee lover. `BLDQuestions:`BLD For the coffee lover, what `0x2022 cup size maximizes Starbucks' profit? `0x2022 cup price maximizes Starbucks' profit? Next, focus on the coffee fanatic. Adjust the Large Cup Size scrollbar beneath the graph to find the cup size that maximizes the firm's profit from its sales to the coffee fanatic. `BLDQuestions:`BLD For the coffee fanatic, what `0x2022 cup size maximizes Starbucks' profit? `0x2022 cup price maximizes Starbucks' profit? `BLDQuestion:`BLD What is Starbucks' total profit? ` Prob End ` Problem 5 Start Screen 6 - From Full to Asymmetric Information: Starbucks' Reaction // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither N N N L N N N L // 1: Consumer Specs: Low Type and High Type - Offset Alpha ElastOfSub Income L // 2: Marginal and Average Total Cost L L B // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information 1 T T // 4: Visibility T T // 5: Enable F // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility H // 8: Default - L:Low type H:High type // Graph Curves and Surplus Arrows T T T // 9: LowDemandCurve HighDemandCurve MC F F F F // 10: Surplus Arrows - TR TC Prof ConSur XX // 11: Select no arrow // Initial cup sizes and Large cup price (price only relevant for asymmetric info) 16 20 45.69 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `REDObjective: Illustrate the transistion from full information to asymmetric information.`BLK `BLDQuestion:`BLD What happens in the asymmetric case; that is what happens if Starbucks could no longer distinguish the consumer type and consequently, offers both types to the consumers? To address this question we start with the full information solution from the previous screen. Now, select the Asym checkbox to see how asymmetric information affects the consumers. Note that both full information coffee bundles for the small and large cups are displayed on the graph: `0x2022 Small cup - purple. `0x2022 Large cup - black. Focus on the coffee fanatic. How much utility does the `0x2022 small cup generate for him/her? `0x2022 large cup generate for him/her? `BLDQuestion:`BLD Does the coffee fanatic switch from the large cup to the small cup? Explain. `BLDQuestion:`BLD If so, what is the effect on `0x2022 profit earned from the sale to the fanatic? `0x2022 total profits? `BLDQuestion:`BLD How does Starbucks feel about this? `BLDAnswer:`BLD Not happy. `BLDQuestion:`BLD How might Starbucks prevent the coffee fanatic from switching to the small cup? `BLDStarbucks' Strategy:`BLD Induce the coffee fanatic to continue buying the large cup by reducing its price. Adjust the Large Cup Price scrollbar to reduce the price of the large cup. `BLDQuestion:`BLD What is the highest price Starbucks can charge and still prevent the coffee fanatic from switching to the small cup? Explain. `BLDQuestion:`BLD Does this affect the profit Starbucks earns for the sale to the `0x2022 coffee lover? If so, how? `0x2022 coffee fanatic? If so, how? `BLDQuestion:`BLD How does this affect Starbucks total profit? If so, how? `BLDQuestion:`BLD In the presence of asymmetric information, does Starbucks have an incentive to reduce the price of the large cup? Explain. ` Prob End ` Problem 6 Start Screen 7 - Asymmetric Information: Fine Tuning // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither N N N L N N N L // 1: Consumer Specs: Low Type and High Type - Offset Alpha ElastOfSub Income L // 2: Marginal and Average Total Cost B B N // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information Foundation T // 4: Visibility T T // 5: Enable A // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility H // 8: Default - L:Low type H:High type // Graph Curves and Surplus Arrows T T T // 9: LowDemandCurve HighDemandCurve MC F F F F // 10: Surplus Arrows - TR TC Prof ConSur XX // 11: Select no arrow // Initial cup sizes and Large cup price (price only relevant for asymmetric info) 16 20 10 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `REDObjective: Show that Starbucks can increase its profits by increasing the size of the large cup and reducing the size of the small cup.`BLK `BLDQuestion:`BLD Focus on the coffee fanatic's marginal rate of substitution and the per ounce cost of coffee. Could Starbucks increase its profit from the sale to the coffee fanatic by increasing the size of the large cup? Explain. `BLDQuestion:`BLD If so, what large cup size maximizes profit generated from the sale of the large cup? Next, reduce the size of the small cup from 16 ounces to 4 ounces. `BLDQuestion:`BLD How does this affect the profit Starbucks earns from the sale to the `0x2022 coffee lover? Explain. `0x2022 coffee fanatic? Explain. `BLDQuestion:`BLD Does this affect Starbucks' total profit? `BLDQuestion:`BLD What large cup size maximizes Starbucks' total profit when it's small cup size equals 4 ounces? Convice yourself that Starbucks is now maximizing its total profit by experimenting with different small and larg cup sizes. `BLDQuestion:`BLD In the presence of asymmetric information, does Starbucks have an incentive to reduce the size of the small cup? Explain. ` Prob End """ } ` Problem X Start Screen X - All Sliders // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither B B B B B B B B // 1: Consumer Specs: Low Type and High Type - Offset Alpha ElastOfSub Income B // 2: Marginal and Average Total Cost B B B // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information T T // 4: Visibility T T // 5: Enable // Default Mode F // 6: Default Mode - F:Full information, A:Asymmetic, I:Instruction // Checkboxes: High and low types - Only relevant for asymmetric info T T // 7: Visibility H // 8: Default - L:Low type H:High type // Graph Curves and Surplus Arrows T T T // 9: LowDemandCurve HighDemandCurve MC T T T T // 10: Surplus Arrows - TR TC Prof Other Other // 11: Select no arrow // Initial cup sizes and Large cup price (price only relevant for asymmetric info) 10 30 40 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue All sliders visible ` Prob End