Question

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 , where is the price of a minute.

Answer 1

a. A=0 B=1
b. A=150min B=100
c. A=120 B=100
d. A=150x3/2-120=105 B=100x2/2=100
e. A, because of d.

Surplus of consumer is the amount that he save because he can purchase a product for a price that is less than he would be willing to pay. For example he is willing to pay almost $3 for the first minute, but he can pay only $1 or zero, so $2 (resp. 3 $) are his surplus from the first minute.

Graphically, his surplus is a area between his demand (wich is straight) and the line of price( straight parallel to x)

So in A it is content of triangle [0;3] [0;0] [150;0] (noted as [x;y], x=number of minutes; y price) and you have subtract $120 fix charge

in B it is content of triangle [0;3] [0;1] [100;1]