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Comparing Two Tariff Plans

Kim Davis has decided to purchase a cellular phone, but she is unsure about which rate plan to select. The "regular" plan charges a fixed fee of $55 per month for 1,000 minutes of airtime plus $0.33 per minute for any time over 1,000 minutes. The "executive" plan charges a fixed fee of $100 per month for 1, 200 minutes of airtime plus $0.25 per minute over 1,200 minutes.

a.If Kim expects to use the phone for 21 hours per month, which plan should she select?
b.At what level of use would Kim be indifferent between the two plans?

Solution Preview

Solution:

a. If Kim expects to use the phone for 21 hours per month, which plan should she select?

Case 1, Regular Plan
Total usage=21*60=1260 minutes
Excess usage above free time=1260-1000=260 minutes
Fixed charges=$55
Usage based charges=260*0.33=$85.8
Total Charges=55+85.8=$140.8

Case 2, Executive Plan
Total usage=21*60=1260 minutes
Excess usage above free time=1260-1200=60 ...

Solution Summary

Solution compares the two different tariff plans and chooses the best suited for Kim. It also calculates the usage level at which Kim should be indifferent between two plans.

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