EBK ESSENTIALS OF ECONOMICS
8th Edition
ISBN: 8220103599832
Author: Mankiw
Publisher: Cengage Learning US
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Textbook Question
Chapter 7, Problem 10PA
A friend of yours is considering two cell phone service providers. Provider A charges $120 per month for the service regardless of the number of phone calls made. Provider B does not have a fixed service fee but instead charges $1 per minute for calls. Your friend's monthly
a. With each provider, what is the cost to your friend of an extra minute on the phone?
b. In light of your answer to (a), how many minutes with each provider would your friend talk on the phone?
c. How much would she end up paying each provider every month?
d. How much consumer surplus would she obtain with each provider? (Hint: Graph the demand curve and recall the formula for the area of a triangle.)
e. Which provider would you recommend that your friend choose? Why?
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A friend of yours is considering two cell phone service providers. Provider A charges $100 per month for the service regardless of the number of phone calls made. Provider B does not have a fixed service fee but instead charges $1 per minute for calls. Your friend's monthly demand for minutes of calling is given by the equation QD=120−30PQD=120−30P, where PP is the price of a minute.
With Provider A, the cost of an extra minute is ?
With Provider B, the cost of an extra minute is ?
Given your friend's demand for minutes and the cost of an extra minute with each provider, if your friend used Provider A, he would talk for ?? minutes, and if he used Provider B, he would talk for ?? minutes
This means your friend would pay
for service with Provider A and
for service with Provider B.
Use the following graph to draw your friend's demand curve for minutes. Then use the green triangle to help you answer the questions that follow.
Your friend would obtain
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A friend of yours is considering two cell phone service providers. Provider A charges $100 per month for the service regardless of the number of phone calls made. Provider B does not have a fixed service fee but instead charges $0.5 per minute for calls. Your friend's monthly demand for minutes of calling is given by the equation QD=160−80PQD=160−80P, where PP is the price of a minute.
With Provider A, the cost of an extra minute is
. With Provider B, the cost of an extra minute is
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Given your friend's demand for minutes and the cost of an extra minute with each provider, if your friend used Provider A, he would talk for
minutes, and if he used Provider B, he would talk for
minutes.
This means your friend would pay
for service with Provider A and
for service with Provider B.
Use the following graph to draw your friend's demand curve for minutes. Then use the green triangle to help you answer the questions that follow
Chapter 7 Solutions
EBK ESSENTIALS OF ECONOMICS
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