Explain why a monopoly that knows the demand curve of identical consumers can set a two-part tariff with the lump sum tariff equal to the total amount of potential consumer surplus

What will be an ideal response?

The producer wants to set the lump sum tariff equal to the competitive level of consumer surplus. This maximizes the producer surplus. The consumer surplus measures the difference between the consumer's value of the good and the price paid for each unit. Thus, the consumers are willing to pay up to the total amount of consumer surplus.