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Many software companies, after years of providing unlimited free telephone technical support for their products, began to charge for these services (typically after an initial start-up period of 90 days). Most companies offer two pricing plans. Suppose, for instance, Lotus Development offers users of their spreadsheet software the option of paying either (i) $2.00 per minute for telephone support or (ii) a $129 flat charge for a year of unlimited toll-free calls.

Consider a customer with a yearly demand for service support of P = 11 - 0.1Q, where P is the price per minute and Q is the number of minutes of calls made per year. How many minutes of calls would this customer make under plan

(i)? How many minutes of calls would he or she make under plan

(ii)? Calculate the consumer surplus for each of the plans (i) and (ii).

Microeconomics, Economics

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