There are a number of internet services such as live streaming videos that us a lot of band width. Consider an internet provider that currently charges a fixed up-front fee with unlimited usage. Consider out customer, named Oliver, whose monthly demand for internet usage is
Q=16-0.5P or P=32-2Q
where is the number of gigabytes used per month and P is the incremental price per gigabyte, in dollars. Oliver currently pays a fixed monthly fee of 80 dollars for unlimited internet access
Oliver's ISP is looking for ways to ration the available bandwidth by introducing a plan that combines a lower fixed monthly fee with an additional per gigabyte charge after a threshold has been reached. The new plan offers an up front monthly fee of 45 dollars with no additional charge for the first 10 gigabytes consumed per month, but additional usage above 10 gigabytes is charged a price of 2 dollars per gigabyte.
- If Oliver switches to the new plan offered, how many gigabytes will he download? Show work to iilustrate the answer
- Calculate Oliver's consumer surplus under the new plan Show your work. Illustrate your answer on your graph from part 1.
- Based on his consumer surplus, would Oliver prefer the original plan or the new plan? Explain you answer