Joe Smiley buys his mobile phone services from Sprint, the soleprovider in his state of Wyoming. Sprint
Question:
Joe Smiley buys his mobile phone services from Sprint, the soleprovider in his state of Wyoming. Sprint offers the followingpricing plans: a fee of 10 dollars per month and 50 minutes of freecalls per month
or a fee of 20 dollars per month and 100 minutes of free calls.Under both plans the price of additional calls is 25 cents perminute. Joe Smiley's demand curve for mobile phone services isP=100 - 0.5Q where P is measured in cents/minute and Q is measuredin minutes per month.
Answer the following questions:
a) suppose Joe Smiley subscribes to the first plan (10 dollar feeand 50 free minutes)
(i) how much calling time would he consume?
(ii) what would be his total benefit? What would be hissurplus?
b) suppose Joe Smiley subscribes to the second plan (20 dollar feeand 100 free minutes)
(i) how much calling time would he consume?
(ii) what would be his total benefit? What would be hissurplus?
c) which plan would Joe Smiley choose?
He will choose plan (b) because it maximizes his surplus
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba