QS 14-2 Fixed and variable costs LO C2 A cell phone company offers two different plans. Plan A costs $85 per month for unlimited talk and text. Plan B costs $0.20 per minute plus $0.10 per text message sent. You need to purchase a plan for your 14-year-old sister. Your sister currently uses 1,750 minutes and sends 1,600 texts each month. (1) What is your sister's total cost under each of the two plans? (2) Suppose your sister doubles her monthly usage to 3,500 minutes and sends 3,200 texts. What is your sister's total cost under each of the two plans?

Part 1

Total cost of Plan A = $85 (plan A offers unlimited talks and message at the cost of $85)

Total cost of plan B = (cost per minute * usage minutes) + (cost per message * usage texts) = (0.20*1750) + (0.10*1600) = $510

Part 2

Total cost of Plan A = $85 (plan A offers unlimited talks and message at the cost of $85)

Total cost of plan B = (cost per minute * usage minutes) + (cost per message * usage texts) = (0.20*3500) + (0.10*3200) = $1020

The cost of plan A is fixed in nature. It does not change with number of call minutes and text messages. While the cost of plan B is variable in nature and it changes with number of call minutes and text messages.

1) Total cost under current usage:

Plan A = $85 per month

Plan B = $510 per month (Talk 1,750 minutes at $0.20 plus 1,600 texts at $0.10)

2) Total cost with doubled usage:

Plan A = $85 per month

Plan B = $510 x 2 = $1,020

Explanation:

Plan A is actually the best option under the current and doubled usages.

Plan B is costlier than Plan A under the current and doubled usages.

I would, therefore, consider Plan A all other things being equal.