Explain price plans for china mobile worldwide connect – Microeconomics
China mobile offers nine price plans for its “worldwide connect” service in the city of nanjing. The cheapest plan provides 350 “free minutes” of calls for 68 yuan per month, while the next cheapest plan provides 450 “free minutes” of calls for 88 yuan per month. Under both plans, the price of additional calls is .29 yuan per minute.
(a) Lin Jun’s demand curve for mobile calling is a straight line. Two points on her demand curve are: (i) at a price of 1.29 yuan per minute, quantity of 0 minutes; and (ii) at a price of .29 yuan per minute, quantity of 400 minutes. Draw her demand curve.
(b) suppose that lin jun subscribes to the 88 yuan per month plan. (i) how much calling time would she consume? (ii) what would be her total benefit? (iii) what would be her buyer surplus (benefit less charges)?
(c) replicate (b) assuming that lin jun subscribes to the 68 yuan per month plan. Note that she might decide to buy additional minutes beyond her free minutes.
(d) which plan should she choose to maximize buyer surplus?
