The telephone company allows one to choose between two different pricing plans. For a fee of $12 per month you can make as many local phone calls as you want, at no additional charge per call. Alternatively, you can pay $8 per month and be charged 5 cents for each local phone call that you make. Suppose that you have a total of $20 per month to spend.
(a) On the graph below, use black ink to sketch a budget line for someone who chooses the first plan. Use red ink to draw a budget line for someone who chooses the second plan. Where do the two budget lines cross?
(b) Use pencil to draw indifference curves for someone who prefers the second plan to the first. Use blue ink to draw an indifference curve for someone who prefers the first plan to the second