Imagine cell phones are simple and the only thing consumers care about is minute

ID: 1180879 • Letter: I

Question

Imagine cell phones are simple and the only thing consumers care about is

minutes. Suppose a monopolist wireless company says, "The cell phone and the first

6 minutes are free, and the price of each additional minute is $2."

Now suppose your demand for minutes is

q(p) = 10 - p

Now suppose the wireless company says, "For a limited time you can only pay

a sign-up fee of only $12." The rest of the deal is the same: you get up to 6 minutes

of talk time, and the price of each additional minute is $2. What is your maximum

consumer surplus? Will you accept it?

Maximum demand = when p = 0 => q = 10

so maximum price for 10 minutes = 10*2 = 20

now as per deal,for 10 minutes we have to pay => 12+ 2*4 = 20

so Maximum consumer surplus = 20-20 = 0.

Well,No consumer surplus,if there is no other fair deal available..its okay to accept this!