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# Fran has a monthly income of \$60. She spends her money making telephone calls (measured in minutes) at a price px and on other composite good y,…

Fran has a monthly income of \$60. She spends her money making telephone calls (measured in minutes) at a price px and on other composite good y, whose price has been normalized to one, i.e., py = \$1. Her mobile phone company offers her two plans: Plan I, in which she pays no monthly fee and makes calls for \$0.50 per minute; or Plan II in which she pays a \$20 monthly fee and benefits from cheaper phone calls at \$0.20 per minute.

(a) Depict Fran’s budget constraint under each of the two plans, with the number of phone calls (good x) in the horizontal axis and the composite good (good y) in the vertical. Identify the intersection point between these two plans.

(b) If Fran decides that plan I is better for her, what is the set of baskets she may purchase if her behavior is consistent with WARP.

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