Reference no: EM132795651
There are a number of Internet services, such as live streaming videos, that use a great deal of bandwidth. Consider an Internet service provider that currently charges a fixed up-front monthly fee with unlimited usage (unlimited data uploading and downloading). Consider one consumer, Oliver, whose monthly demand for Internet usage is:
-Q=16-0.5P or P =32-2Q
- where Q 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 for unlimited Internet access.
-Oliver's Internet service provider (ISP) is looking for ways to ration the available bandwidth by in- troducing a plan that combines a lower fixed monthly fee with an additional per-gigabyte charge after a certain threshold. The new plan offered by Oliver's ISP consists of an up-front monthly fee of $45 with no additional charge for the first 10 gigabytes consumed per month, but additional usage above 10 gigabytes is charged a price of $2 per gigabyte.
-(a) If Oliver switches to the new plan offered by his ISP, how many gigabytes will he down- load? Show your work and illustrate your answer.
-(b) Calculate Oliver's consumer surplus under the new plan. Show your work. Illustrate your answer on your graph from part (a).
-(c) Based on his consumer surplus, would Oliver prefer the original plan or the new plan? Briefly explain your answer.
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