Some wireless communication providers are currently offering \"buy one get one f

Question

Some wireless communication providers are currently offering "buy one get one free" for select models of smartphones. That model of smartphone sells for $500. What is the likely aftermath of a consumer taking advantage of this generous offer?

1)The customer experiences the feeling of a $500 consumer surplus.

2)The wireless provider's marginal cost of providing service to the "free" phone quickly declines and remains low, indefinitely.

3)The wireless company is getting phones for free from the phone manufacturer, so it is a "win-win".

4)both a and b

Explanation / Answer

The Answer is option 4. Reasons:

1. As the consumer is willing to pay $ 500 for the smartphone but is getting it for free, he/she will experience the feeling of $ 500 consumer surplus.

2. The wireless provider's marginal cost of providing service to the free phone will decline quickly and will remain low iindefinitely.

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