A local telephone company offers three pricing options: I. A monthly fee of $20

Question

A local telephone company offers three pricing options:

I. A monthly fee of $20 plus 5 cents per call

II. No monthly fee, but 10 cents per call.

III. No monthly fee, and 20 cents per call for up to 100 calls, and 5 cents per call for any calls beyond the first 100.

Note that the person can avoid the $20 monthly fee in option I by deciding to make no calls and discontinuing phone service. Hence, the first call under option I costs $20.05 ($20 for service plus 5 cents for the call).

Assume that an individual consumes two goods: telephone calls and

Explanation / Answer

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