Your local cell phone company offers you a choice of billing plans: Plan A: Pay

Question

Your local cell phone company offers you a choice of billing plans: Plan A: Pay 5 cents per call. Plan B: Pay an initial $2.00 a week, which allows you up to 30 calls per week at no charge. Any additional call over 30 costs 5 cents per call. Plan C: Pay an initial $4.00 a week, which allows you up to 80 calls per week at no charge. Any additional call over 80 costs 4 cents per call. If your budget for keeping in touch is $12 per week, graph your budget constraints under the three plans. (Make sure you label the budget constraint for each plan properly)

Explanation / Answer

The budget constraints represent the combination of goods and services that a consumer can buy with his current income or budget. The consumer tries to maximise his/her numbers by utilising the money. In the question the budget amount is $12 for calling plans. The number of calls that can be made under three plans are –

Plan A – 5 cents per call – $12 means 1200 cents, so the total number of call is (1200/5) = 240 calls

Plan B – 30 calls for $2 and left is $10, so total calls other than initial 30 = (1000/5) = 200, so the total number of calls here is (30+200) = 230.

Plan C – 80 calls for $4 and left is $8, so total calls other than initial 80 = (800/4) = 200, so the total number of calls here is (80+200) = 280.

Plan C is beneficial to the customer, as he/she can maximum call i.e. 280 call in the given budget of $12 a week.

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