Imagine cell phones are simple and the only thing consumers care about is minute
ID: 1180880 • 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 fi
rst
6 minutes are free, and the price of each additional minute is $2." This is shown in
the graph below. Now suppose your demand for minutes is
q(p) = 10 - p
Copy this graph into your homework and draw the demand line. Indicate, on the
x-axis, the total quantity of minutes you will buy (Note: this is the same as usual.
You are maximizing consumer surplus so you buy minutes up to the point where
your value of an additional minute is below its price.) Shade in consumer surplus
and calculate it.
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." This is shown in the graph below. Now suppose your demand for minutes is q(p) = 10 - p Copy this graph into your homework and draw the demand line. Indicate, on the x-axis, the total quantity of minutes you will buy (Note: this is the same as usual. You are maximizing consumer surplus so you buy minutes up to the point where your value of an additional minute is below its price.) Shade in consumer surplus and calculate it.Explanation / Answer
when price is 2,Demand is q = 10-2 = 8 minutes.
but you get 6 additional minutes for free.
So Maximum consumer surplus = 6*2 = $12
Now as for plotting the demand line,
For Price/minute = 0 its equal to 6.(Plot y=0 from x=0 to x=6 in the above graph)
for price per minute = 2,its equal to 8 (plot y=2 from from x=6 to x=14)
Well,I guess u already drew the graph,since those red lines coincide wid the graph required to be plotted!