ECO206Y1Y: Microeconomic Theory
Microeconomic Theory
ECO206Y1Y: Microeconomic Theory
Writing Assignment 3
Purpose
To use course economics to answer a real world question. To develop your ability to communicate
your analysis to a non-specialized audience.
Who you will
write for
Consider the high-speed home internet market in rural Ontario. It requires infrastructure that is
very expensive to build. Right now, there is no infrastructure. There is only one internet provider,
OneNet that uses satellites to provide home internet so it doesn’t need infrastructure.
OneNet has hired you as a consultant on their pricing strategy. Your memo will be circulated
widely, both within and outside the company, so you’re writing for a smart, informed audience
that does not know our economic terms and definitions but can understand basic economic
reasoning. They expect the highest level economic analysis you are capable of, communicated in
clear English, with no jargon.
What you will
write about
OneNet currently offers two pricing packages. Each package has a monthly fee, and an associated
maximum amount of data per plan. Going over the limit results in very high overage charges.
Due to the current worldwide situation, every household now has someone working online from
home and/or attending school online, which requires stable home internet access. After extensive
consumer lobbying, Ontario now requires that OneNet remove any overage charges and data limits
on all their home internet plans.
Your task is to recommend a new pricing structure to OneNet that satisfies the new requirement
and maximizes their profits.
What you will
write
Write a memo that
1. Recommends a pricing strategy. E.g. Two packages, one with a lower monthly fee and a lower
data cap than the other, chosen so that...You are not expected to provide exact numbers as you
don’t have the information you to do so.
2. Details the reasoning behind your choice.
a. Your economic reasoning should use ECO 206 concepts–think about firm choices under
different technologies, etc.
b. You must be clear about the strengths and weaknesses of your position.
c. Attempt to convey the conditions under which your arguments hold and any potential missing
elements.
Assignment
Organization
Your assignment must have:
1. An introduction (first paragraph) that gives a concise summary of your reasoning.
2. Main body, structured into different paragraphs, that expands on this summary and details your
economic analysis.
3. A short concluding paragraph that reiterates your recommendation and summarizes your
analysis adding depth from the analysis in the body.
4. A reference section at the end that includes all the sources you cite. References are not
required, but if you use work, please cite it. In-text citations and the reference section do not
count towards the word count.Use the APA formatting and Style Guide.
ECO206Y1Y, Fall 2020 1 of 4 University of Toronto
Background
Information
• OneNet currently offers two pricing packages. The Speedy package has a lower monthly fee but
a lower data limit. If Speedy users use more than their limit in a month, they are automatically
billed according to the Turbo package, which has a higher monthly fee, but a higher data cap.
Turbo users who go over the limit are charged a very high per-GB fee. • Data shows that
consumers with lower incomes buy the Speedy package while richer households with larger families
buy the Turbo package. • Ontario only restricts the overage charges and data caps. It does not
impose any other pricing restrictions. • Providing internet through satellites has a constant,
non-zero, per-GB Marginal Cost. assume for simplicity that the fixed cost is the one-time cost of
sending the satellite into orbit and that has already been paid. Assume that this remains
unchanged with the pandemic.
• There are only two types of customers. OneNet knows each type’s demand curve, but cannot
identify each individual’s type at the time of purchase (or after because households can change
their type, think income/job/no. of members etc. can change for many reasons).
• To keep things simple, assume that even with the worldwide events, there are still two types,
though the relative proportions of each type could change. Effectively, make some clearly stated
assumptions, e.g. how and why each type’s demand changes if it does.
• You can assume that household internet demand is stable and does not fluctuate month to
month.
• Each customer has to buy a modem, etc. as a one-time setup cost. After that, their price
depends on the package they choose. If they’re an existing customer, they’ve already bought the
modem, etc.
Format
Length: You have a maximum of 750 words1 which should be about three pages when typed,
with double spacing and using a font size of 12 points.
• Put the word count of your assignment in parentheses at the end. For example, “(737 words)”
• You must use only words, no equations, graphs or tables.
• Every page of the assignment must have a header with your full name, student id number and
the class information (i.e. ECO 206, Fall 2020)
• Quercus: Each assignment should be a Word document without any embedded images. Office
365 access is free with your UofT student account. Any other formats will be treated as a late
submission till the correct version is submitted.
• Crowdmark: Convert the Word file into a pdf file (File -> Save As -> pdf) and upload on
Crowdmark.
Academic
Integrity
Academic Integrity is central to an UofT education. We take it seriously and so should you.
Do your own work. We design course work to develop and assess skills useful in upper-level
courses and the job market. You lose a valuable opportunity to develop these skills and lower the
value of the UofT brand when you cheat.
Properly acknowledge other people’s ideas. You’d want the same for your ideas.
Ask if you’re unsure. On this assessment you can discuss your ideas with your us, the study
center and your classmates. However your work and your words have to be your own.
Report any suspected violations by other students to the professor immediately. Students who
cheat, hurt others who work hard and honestly. Maintaining the Academic Integrity of the course
is a shared responsibility; do your part.
Read the University of Toronto’s Code of Behavior on Academic Matters. See:
http://www.artsci.utoronto.ca/osai. This is especially important if you’re new to the UofT.
1Footnotes don’t count towards the word limit. However, if you use footnotes as a way around the word count, we will ignore the information there.
We usually forgive up to 10% of the word count, more than that and penalties apply.
ECO206Y1Y, Fall 2020 2 of 4 University of Toronto
Advice
• Just like Writing Assignment 2, I’ve put restrictions on your assumptions to simplify the task.
Some students may not like this, but please work within these assumptions. We need to balance
giving you a chance to explore the topic independently within the word limit against consistent
grading criteria.
• I have tried my best to anticipate common questions and address them in the instructions. If
further questions come up post them on Piazza or stop by office hours.
• For this assignment, I would recommend you start by deriving/graphing what OneNet’s optimal
pricing packages are before worldwide developments. Then think about what changes in the
environment and why? Why are people worried about overage charges now when it wasn’t an issue
before?
• In this new environment, what would the new pricing structure look like without Ontario’s
restriction?
• What does the restriction change? Is there something that is necessary for the new pricing
scheme to work that is not possible because of the restriction? How to adapt the pricing scheme?
• You can use numbers to illustrate your point, but use it sparingly. For example, sometimes it
may be easier to describe a package as 50GB for $100 a month rather than saying a maximum
quantity of data for a fixed monthly fee. But, this is a slippery slope so use only when absolutely
necessary. Stay away from using numbers to calculate things. It doesn’t make sense as you don’t
have data. OneNet needs a procedure and reasons why they should follow it, not calculations
based on made up numbers.
• You can name your price discrimination strategy if you want in the introduction, that is
probably a good strategy so your grader has some idea what you’re arguing, BUT you cannot
assume that your audience knows what it means. You need to explain it to your reader. Defining it
upfront and then using it as jargon later doesn’t help either. You can save words by explaining it
while explaining your analysis. Hint: check to make sure the conditions and assumptions hold in
your chosen form of price discrimination. E.g. while first-degree would be nice to implement from
a firm’s perspective, is it possible here?
• Writing should be the second step, not the first. When ready to write, sketch out your argument
with bullet points. As you do this you may want to go back and forth between your diagram and
writing as your thinking evolves. When you have a good outline, flesh out the sentences. Keep
only what is essential. The word count is a disciplining device.
• Same advice about talking to some else and using the college writing center from the previous
assessments applies here. Remember, what seems clear to you may not be to the reader.