Figure 9.6 shows an individual's demand curve for time per month spent telecommunicating while driving (talking on the car phone.) A car phone is useless except for talking with somebody who is not in the car
If calls are priced at ten cents per minute, what is the consumer surplus derived from talking? What is the most this person would pay for the car phone? Explain.
The consumer surplus from talking on the car phone is ($2.90 ? 20)/2 = $29. This person would pay up to $29 per month to have the phone. Having the phone is worth $29 per month to this person because that is the value this person places on calls from the car phone over and above what is paid just for the calls. The phone has no other value to the person except to make the calls. If the phone cost more than $29 per month this person would feel better off without the phone.
You might also like to view...
The cost of a variable input, such as the wage paid to workers, decreases. This decrease shifts the
A) total fixed cost curve downward. B) marginal product of labor curve downward. C) average variable cost curve downward. D) marginal product of labor curve upward.
The reason why firms in perfect competition do not advertise is because
a. their demand curves are all downward sloping and if they sell more it would have to be at a lower price b. they differentiate themselves, as with milk c. they are typically small in size and cannot produce for a wider market d. there is no entry into the industry e. there is no product differentiation among the goods produced