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.
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.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter6: Simple Pricing
Section: Chapter Questions
Problem 6MC
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Question
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
.
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
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