Joe Smiley buys his mobile phone services from Sprint, the sole provider in his state of Wyoming. Sprint offers the following pricing plans: a fee of 10 dollars per month and 50 minutes of free calls 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 per minute. Joe Smiley's demand curve for mobile phone services is P=100 - 0.5Q where P is measured in cents/minute and Q is measured in minutes per month. Answer the following questions: a) suppose Joe Smiley subscribes to the first plan (10 dollar fee and 50 free minutes) (i) how much calling time would he consume? (ii) what would be his total benefit? What would be his surplus?
Joe Smiley buys his mobile phone services from Sprint, the sole provider in his state of Wyoming.
Sprint offers the following pricing plans: a fee of 10 dollars per month and 50 minutes of free calls 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 per minute.
Joe Smiley's demand curve for mobile phone services is P=100 - 0.5Q
where P is measured in cents/minute and Q is measured in minutes per month.
Answer the following questions:
a) suppose Joe Smiley subscribes to the first plan (10 dollar fee and 50 free minutes)
(i) how much calling time would he consume?
(ii) what would be his total benefit? What would be his surplus?
b) suppose Joe Smiley subscribes to the second plan (20 dollar fee and 100 free minutes)
(i) how much calling time would he consume?
(ii) what would be his total benefit? What would be his surplus?
c) which plan would Joe Smiley choose?
He will choose plan (b) because it maximizes his surplus
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