Question

10. Problems and Applications Q10 A friend of yours is considering two cell phone service providers. Provider A charges $110 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 = 100 – 20P, where P is the price of a minute. With Provider A, the cost of an extra minute is $0 . With Provider B, the cost of an extra minute is $1. 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 100 minutes, and if he used Provider B, he would talk for 30 minutes. This means your friend would pay $110 for service with Provider A and $80 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. Note: You will not be graded on any changes you make to the graph.

just the graph please

Answer 1

Price of minutes 0 20 40 60 140 160 180 200 80 100 120 Quantity of Minutes

Blue line is demand curve.

Consumer is better off with provider B, since it yields more consumer surplus.

Green shaded region is consumer surplus when consumer choose provider B.

Note: Consumer surplus when choose producer A = (0.5 * 5 * 100 ) - 110 = $140

Consumer surplus when consumer choose producer B = 0.5 (5-1) (80-0) = $160