Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers,which of the following is the most profitable price per minute? A) $0.35 B) $0.40 C) $0.50 D) $0.60

Question

Quizplus · Accepted Answer

To determine the highest fixed fee that Always There Wireless can charge without losing the low-demand consumers, we need to find the point where the low-demand consumers' demand curve intersects the high-demand consumers' demand curve. Setting Q^d_dL = Q^d_dH and solving for P, we get: 100 - 100P = 200 - 100P P = $1 This means that Always There Wireless can charge a fixed fee of $1 per minute without losing the low-demand consumers. To determine the most profitable price per minute, we need to find the price that maximizes profit. Profit is given by: Profit = (P - $0.25) * Q where Q is the quantity demanded at price P. To find Q, we need to plug in P to the demand curves: For high-demand consumers: QH = 200 - 100P For low-demand consumers: QL = 100 - 100P Total quantity demanded is Q = QH + QL. Plugging in the value of P that maximizes profit, we get: Q = (200 - 100($0.50)) + (100 - 100($0.50)) Q = 150 Therefore, at a price of $0.50 per minute, the quantity demanded is 150 minutes per consumer. Plugging in P = $0.50 and Q = 150 to the profit equation, we get: Profit = ($0.50 - $0.25) * 150 Profit = $22.50 Thus, the most profitable price per minute is $0.50. Therefore, the answer is C.

Suppose Always There Wireless Serves 100 High-Demand Wireless Consumers,who Each