You have a budget of Rs. 4000 and buy LPG cylinders at Rs. 50 each. If you return an empty cylinder purchased from the seller you get a refund of Rs. 20 per cylinder. You cannot borrow money. The maximum number of cylinders you can purchase is
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Answer: (B)
Each purchase costs Rs. 50 and, once the empty is returned, refunds Rs. 20, a net drain of Rs. 30. But you need Rs. 50 in hand to make each purchase, so the binding limit is liquidity, not just the net cost.
Buying and returning repeatedly, cash after cylinders is . After 131 cylinders cash is Rs. 70, enough to buy the 132nd (cash falls to 20, then the refund brings it to 40). With Rs. 40 left you cannot buy a 133rd. The maximum is 132, option (B).
Dividing the budget by the net cost 30 suggests about 133; the no-borrowing rule forces you to hold Rs. 50 before each buy, which caps purchases one short at 132.
Budget constraint and consumer equilibrium has come up 99 times in 7 exams since 2004.
This question is on Non-standard budgets: bundles, rationing and quantity limits, part of Budget constraint and consumer equilibrium in Microeconomics.
Budget sets with bundled offers, tie-ins, quantity caps, block prices or liquidity constraints.
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Question from the IIT JAM 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.