Question

You are an executive for Verizon, a telecommunication company. Verizon rents smartphones to its customers for two-years. The latest version of Zphone, the smartest phone of all times, Zphone LXVIII, can only be rented at Verizon, but once the customers rent the new phone for two years from Verizon, they can purchase the network service from any network provider by simply buying a sim card, and the network providers’ market is a perfectly competitive market.

There are two types of customers in the market, business, and non-business customers, and there are 100 customers for each type. Verizon cannot distinguish different types of consumers. The demand for non-business customers is Q_A = 600 - ­10P_A, i.e., at a price of P_A per minute of talking, non-business customers want to talk Q_A minutes in a month.

The demand for business customers is Q_B = 800 - 10P_B, where Q_B, i.e., at a price of P_B per minute of talking, non-business customers want to talk Q_B minutes in a month. The marginal cost of providing a one-minute network service is $20 for any network company. Verizon's fixed cost is zero.

Find Verizon's optimal two-years lease fee for Zphone LXVIII. Determine which type of consumers lease Zphone from Verizon. Compute the total amount paid by each type of consumer.

Answer 1