Question

Recently, an Internet service provider (ISP) in the UK implemented a“no-strings US-style flat-rate plan” whereby its commercial subscribers cansend and receive unlimited volume (measured in gigabytes) up to a cap ofgigabytes (per month) via their broadband Internet service for a flat monthly fee of. Under the old “metered plan,” Alistair Willough by Cook sent and received a grand total ofgigabytes over their broadband connection and paidin usage fees in a typical-day month. If all customers are exactly like Alistair, what is the impact of the flat-rate plan on consumer welfare and the company’s profits? Explain

Short answer

If the quantity necessitated will rise along with the supply of services at a constant rate, the firm can also maintain its profit.

Step-by-step solution

Step 1:Profit

Profit is the cash an enterprise pulls in after accounting for all expenses. Whether it is a lemonade stand or a publicly-traded multinational company, the number oneintention of any enterprise is to earn cash, consequently, an enterprise’s overall performance is primarily based totally on profitability, in its numerous forms.

Explanation

If we see the comparison between the consumer and the firm, the flat-rate plan will give an advantage, mostly to the consumer. As the quantity of any source increases, the price of the good remains similar, the point is that consumers will not reserve goods or they can buy more.

If we simply consider the firm's welfare, then the situation might be if there will be a flat-rate plan, so the profit of the firm will face a reduction. It usually happens as there will be a surge in the cost of service.

Therefore, if the quantity necessitated will rise along with the supply of services at a constant rate, the firm can also maintain its profit.