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Question: 14 verizon kinks the budget constraint travel back in time...

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1.4 Verizon kinks the budget constraint Travel back in time to January 2018, when Verizon offered the following wireless data plans: . 2 GB data for $35 per month . 4 GB data for $50 per month .8 GB data for $70 per month . 16 GB data for $90 per month .24 GB data for $110 per month In each case, if you use more than the allotted data, additional data costs $15 per GB.1 Now that youre in 2018, you have to decide now which plan to purchase, in which case you will be locked into the contract for the next 12 months. You also know that in each month be represented by the utility function your preferences will where x is the number of GB of data you consume, and x2 is a representative basket of all other goods you consume. The price of x2 is normalized to p2 S1. a) After signing up for a wireless data plan, in each month you will solve a consumer choice problem of deciding how much data and all other goods to consume subject to the budget constraint if xi < L where M is your monthly budget, L is the allotted data in your wireless data plan, and K is the monthly fee for your plan. In particular, the term 15(x1-L) is your overage fee whenever x2 L In reality additional data can be purchased only in 1 GB bundles. Assume instead, for purposes of this problem, that if you purchase y 20 GB of additional data then you pay an overage fee S15y, even if y is not a whole number Also, ignore all other realistic aspects of these plans, such as data bonuses per line, carryover data, other taxes and fees, and hardware costs. Note that each month when you make this decision, K is not a choice variable, since at that time you will already be locked into the contract. As a function of K, L, and M, how much data will you use each month? (If you would like to make a simplification here, you may assume that M-200.) b) Given your answer for the first part, which data plan should you choose, as a function of M? (Or for M 200 if you have made the simplification above.)

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