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
e. Which provider would you recommend that your friend choose? Why?
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Chapter 7 Solutions
Essentials of Economics (MindTap Course List)
- There are two restaurants next to each other. Restaurant 1 (R1) sells burritos and Restaurant 2 (R2) sells burgers. Both restaurants have to simultaneously set their prices which can be any non-negative 1 real number. Denote by p1 the price of a burrito set by R1 and by p2 the price of a burger set by R2. Since consumers have a choice of which restaurant to go to and are price conscious, the price of each restaurant, besides impacting the demand for its own product, effects the demand for the product of the other restaurant as well. Specifically, the demand functions for the burritos sold by R1 and burgers sold by R2, denoted q1 and q2, respectively, are given by: q1 = 44 − 2p1 + p2 q2 = 44 − 2p2 + p1 (For simplicity, we are assuming here that demand is perfectly divisible). Finally, the cost of producing each unit of burger and burrito is the same and equal to 8. Model this strategic environment as a normal form game and find a pure strategy Nash equilibrium. Is the equilibrium you…arrow_forwardIf the demand curve for open-heart surgery is vertical for people with serious heart conditions, then the demand for open-heart surgery is _________ with respect to price.arrow_forwardClassify the following goods as normal or inferior and provide a justification. (It might be easiest to create a table in Microsoft Excel and put the phrase in one column while the answer goes in the next column.) used cars (as opposed to new cars) home remodeling (versus doing nothing) vacation planning services (versus doing the planning oneself) new clothes (as opposed to used clothes) canned vegetables (as opposed to fresh vegetables)arrow_forward
- Consider a person who consumes water and bread, deriving utility by xy if x is the amount of water consumed and y is the amount of bread consumed. Suppose this person's income is Rs. 10, the unit price of bread is Rs. 3 and the unit price of water facing this person is Re. 1. The price of water incorporates a per unit subsidy of Re. 1, i.e., for every unit of water consumed by this person, she pays Re. 1 to the water supplier and the government pays Re. 1 to the water supplier. Suppose this person's demand is (x0, y0). ,If the government provides this person a lump-sum income subsidy that exactly offsets her utility loss on account of removal of the water subsidy, then the required lump-sum subsidy isarrow_forwardWhat is the highest price consumers would be willing to pay forthis product? Also called the reservation price in the market.arrow_forwardEach low income family receives a weekly payment of $600 from the government (this payment is their only source of income). Surveys of low income families suggest that their preferences are represented by the utility function, U = xy 2, where x represents the number of acceptable homes rented by the family, and y represents the quantity of the composite good consumed. The associate marginal utilities are, MUx = y2 and MUy = 2xy. Finally, the weekly rent on an acceptable family home is Px = $210 per week, and the price of the composite good is normalized to Py = 1. (You should interpret x < 1 as the family renting a home that does not meet the minimum acceptable standard.) Q1 What is the lowest level of income at which a low income family’s consumption of acceptable housing will meet the Government’s target? What level of utility does the family experience at this level of income? (Hint: Use the price Px = $210 at this step.) Q2 What is the highest housing price at which a low income…arrow_forward
- A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating an autodefrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $70 and one with auto-defrost at $80 while women value a simple microwave at $80 and one with autodefrost at $150. If there is an equal number of men and women, what pricing strategy will yield the greatest revenue? What if women comprise the bulk of microwave shoppers?arrow_forwardWhy does the movie theater charge matinee customers a lower price than the night time customers?arrow_forwardYou and your friends love to go fishing. There is a sporting goods store in your neighborhood that sells a fishing pole for $82 but costs the store $60, and a fully stocked tackle box that sells for $58 but costs $40. Assuming the mark-up policy is linear, determine the equation that relates price (P) to cost (C). Following this same mark-up policy for other items, what would be the price of a pair of waders which cost the company $80?arrow_forward
- The following graph shows the supply curve for a group of students looking to sell used tablets. Each student has only one used tablet to sell. Each rectangular segment under the supply curve represents the “cost,” or minimum acceptable price, for one student. Assume that anyone who has a cost just equal to the market price is willing to sell his or her used tablet.arrow_forwardUsing a diagram of either the profit-maximising firm or the consumer choice model, demonstrate how two-part pricing can increase profits for the firm compared with a single price per unit. Why does two-part pricing work best for goods with homogeneous demand?arrow_forwardSven makes rocking chairs for a cost of $75 each, and he sells the rocking chairs for a market price of $130 each. Deidre is willing to pay $200 for a rocking chair. However, the government believes that rocking chair manufacturers should receive more money, and set the lowest legal price rocking chairs can be sold for at $250. At the market price, Sven is willing to sell a rocking chair to Deidre, and Deidre is willing to buy a rocking chair from Sven. Unfortunately, with the new legal minimum, Sven and Deidre cannot trade with one another, and miss out on additional gains from trade. Which of the effects of a price control best fits the scenario above? A)Deadweight Loss B) Reduction in Quality C) misallocation of resources D)wasteful increase in Quanityarrow_forward
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning