ruplun wrote:
In order to increase revenues, a cell-phone company has decided to change its fee structure.Instead of charging a flat rate of $20 per month and $0.50 for every minute over 200 minutes, the company will now charge $50 per month for unlimited usage.
Which of the following is a consideration that, if true, suggests that the new plan will not actually increase the company's revenues?
A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for $40 per month.
B) Two-thirds of the company's customers use less than 500 minutes per month.
C) Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent.
D) One-fifth of the company's customers use in excess of 1,000 minutes per month.
E) In recent months the company has received several complaints of insufficient signal strength and poor customer service.
how to come to conclusion of the solution to be a).I choose B. But according to the solution , the answer is a. and Why?
Source: Mc-Graw Hill's
A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for $40 per month.
Competition from rivals is not a concern. We are asked how new plan will not increase company's revvenues.
B) Two-thirds of the company's customers use less than 500 minutes per month.Suppose, we have 99 customers.
Older PLan: 2/3 of 99 => 66 people use less than 500 min/month.
To minimize the plan's value, lets assume these 66 people make less than 200 min/month.
Now, they will be charged 66* 20$ => 1320$
Remaining 33 people, lets assume they make 500min/month.
they will be charge 33*20$ + 33*0.5*300 => 660 + 4950 => 5610$
total revenues for Older plan => 1320 + 5610 => 6930$
REMEMBER, this is the minimal cost.New plan: 50$ per person
50*99 => 4950$
Thus plan B is not effective. CORRECT
C) Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent.This will show the new plan will be more effective than expected.
D) One-fifth of the company's customers use in excess of 1,000 minutes per month.This can also be calculated as per B. and will hold true.
E) In recent months the company has received several complaints of insufficient signal strength and poor customer service.Out of Scope.
I am confused b/w B and D, however i am more confused how A is correct??
Experts Please help..!!!
Thanks,
Jai