Question:
Southwest Phone Services offers a cellular phone plan for $50 per month. Under this plan, you can make an unlimited number of phone calls and talk as long as you like.
Required
1. Prepare a table that shows the cost per minute of airtime and the total amount of the phone bill at the following usage levels: 10 minutes, 100 minutes, 250 minutes, and 500 minutes.
2. What type of cost behavior does Southwest"s phone plan illustrate? Why?
3. Assume that your current cell phone plan costs you $0.02 per minute. If you use 1,000 minutes of airtime per month, which plan would you prefer, $50 per month or $0.02 per minute? What if you used 3,000 minutes per month? At what level of airtime usage would you become indifferent between the two plans?
4. How would you decide which phone plan to buy?