Recently, an Internet service provider ( ISP) in the UK implemented a “no- strings US- style flat-rate plan” whereby its commercial subscribers can send and receive unlimited volume (measured in gigabytes) up to a cap of 10,000 gigabytes (per month) via their broadband Internet service for a flat monthly fee of £ 399.99. Under the old “metered plan,” Alistair Willoughby Cook sent and received a grand total of 3,500 gigabytes over their broad-band connection and paid £ 399.99 in usage fees in a typical 30-day month. If all customers are exactly like Alistair, what is the impact of the flat- rate plan on consumer welfare and the company’s profits? Explain.
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