You are currently receiving your electrical power from NEO and have an average yearly power consumption of 1000 units of electricity. Another power company Power-On approached you with an offer to switch your electrical supply to them.

Uc = 100 Euro (utility increase from switching) – 50 Euro (your switching costs) + 1000 x 0.1 (switching goodie in the form of a price decrease) = 150 Euro.

First of all we, note that your utility increase from switching due to your bad experience is 100 Euro, the direct switching costs in the form of the termination of the old contract are 50 Euro and the goodie received from Power-On comes from the price decrease (1000 units x 0.1 Euro (price decrease per unit)= 100 Euro).

Thus, according to the formula derived in the lecture, your benefit from switching to Power-On is 100 Euro (utility increase from switching) – 50 Euro (your direct switching costs) + 1000 x 0.1 (switching goodie in the form of a price decrease) = 150 Euro. So, your overall benefit from switching is 150 Euro.