Suppose graph 2 represents a consumer\'s budget line for cell phone service. a.
ID: 1205594 • Letter: S
Question
Suppose graph 2 represents a consumer's budget line for cell phone service.
a. What is causing the discontinuity (kink) in the budget line? What do you know about the price of phone service on the upper portion relative to the lower part of the budget line?
b. Illustrate and explain how it is possible for the consumer to maximize utility at two different points on her budget constraint in graph 2.
c. Suppose the price of cell phone service increased as the minutes used increased. Illustrate and explain why multiple equilibrium points should not occur in this case.
Explanation / Answer
Here all other goods cost and cost of cell phone minutes have no relation,
The point is simple if there is no co-relation and you draw a graph then equilibrium cannot be attained.
The minutes are something that have their own market and cost structure, Some companies charge less for minutes and some charge more for minutes.
Equilibrium can be only attained when there is co-relation between goods and minutes in cell phones,