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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 demand for minutes of calling is given by the equation QD=150−50P, where P is the price of a minute. Your friend would obtain _________ in consumer surplus with Provider A and _______ in consumer surplus with provider B. Given this information, which provider would you recommend that your friend choose?

Respuesta :

TomShelby

Answer:

for provider B the surplus is 100

for provider A te surplus is 125

If my friend is a rational consumer it will pick the Provider A

Explanation:

if P = 1 then:

150 - 50(1) = 100

To know the surplus we calculate the area of the demand above the market price:

(P0 -Pm)Qm/2

(3-1) x (100) / 2 = 2 x 100 / 2 = 100

For provider A then P will be zero so

150 - 50(0) = 150 minutes

the surplus will be the area of the demand curve less the fixed cost

3*150/2 - 100 = 225 - 100 = 125

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