Jeremy has a monthly income of $60. He spends his money making telephone calls (good ?, measured in minutes) at a price of ?? and on other composite good ?, whose price has been normalized to one, meaning ?? = $1. His mobile phone company offers him two plans: plan A, in which he pays no monthly fee and makes calls for $0.50 per minute, or plan B, in which he pays a $20 monthly fee and benefits from cheaper phone calls at $0.20 per minute.(a) Depict Jeremy’s budget constraint under each of the two plans, with the number of phone calls (good ?) in the horizontal axis and the composite good (good ?) in the vertical axis. (b) If Jeremy mentioned that plan A is better for him, what is the set of consumption bundles he may purchase if his behavior is consistent with WARP?
Jeremy has a monthly income of $60. He spends his money making telephone calls (good ?, measured in minutes) at a price of ?? and on other composite good ?, whose price has been normalized to one, meaning ?? = $1. His mobile phone company offers him two plans: plan A, in which he pays no monthly fee and makes calls for $0.50 per minute, or plan B, in which he pays a $20 monthly fee and benefits from cheaper phone calls at $0.20 per minute.(a) Depict Jeremy’s budget constraint under each of the two plans, with the number of phone calls (good ?) in the horizontal axis and the composite good (good ?) in the vertical axis. (b) If Jeremy mentioned that plan A is better for him, what is the set of consumption bundles he may purchase if his behavior is consistent with WARP?
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