Syracuse University
Due Tuesday 4/2
Rural areas in the United States have long lagged behind urban areas in access to high speed internet service because it’s more much more expensive to serve customers who are far apart. This lack of access became especially serious during the pandemic when a lot of teaching went online.
Suppose a county government with a mix of urban and rural areas decides to address the problem by requiring the local internet service provider (ISP) to adopt a cross subsidy policy. Initially, in the absence of the new policy, urban (U) and rural (R) customers are each charged the ISP’s WTA for serving them. As shown in the table of initial information below, those WTAs differ a lot:
Variable | U | R |
Number of customers | 100,000 | 1,500 |
Cost per customer (WTA) | $40 | $250 |
Demand elasticity | -0.4 | -2.5 |
The county would like to move to a single price for both groups. It would like the price to be low enough to increase the number of R customers substantially but high enough for the ISP to break even overall.
Please use the spreadsheet in Teams to evaluate the proposal and answer the following questions at the bottom of the sheet. As usual, fill in the green boxes with data and add appropriate formulas to all of the boxed cells except the blue one for Price 2, which will be used with goal seek. Here are some tips on how to fill in the cells:
Save and submit the results.