A firm is considering building a two-way network that links 11 users. The cost o

Question

A firm is considering building a two-way network that links 11 users. The cost of building the network is $5,000.

a. How many potential connection services does this network provide?

________connection services

b. If each user is willing to pay $100 to connect to the network, will the firm profit by building the network?

YesNo


c. If each user is willing to pay an average of $8 for each potential connection service provided by the network, will the firm profit by building the network?

NoYes


d. What is the increase in the number of potential connection services if one additional user joins the network?

______connection services

Explanation / Answer

a. How many potential connection services does this network provide?

Solution: 110 connection services

Working: A network with 11 users provides 11(11 - 1) = 110 potential connection services

b. If each user is willing to pay $100 to connect to the network, will the firm profit by building the network?

Solution: No

Working: Revenues will be $1100 (=100 * 11) relative to the $5,000 in costs

c. If each user is willing to pay an average of $8 for each potential connection service provided by the network, will the firm profit by building the network?

Solution: Yes

Working: With 110 connection services, each consumer will be paying $880 to join the network. Because there are 11 consumers thus the total revenues are $9,680, compared to the $5,000 required to build the network

d. What is the increase in the number of potential connection services if one additional user joins the network?

Solution: 22 connection services

Working: With one addition, new connection services will be 12 (12-1) = 132 ; Thus increase 132- 110 = 22

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.