Assume a firm is able to use an optimal two-part tariff
a. Is the outcome economically efficient? Why or why not?
b. What happens to consumer surplus?
c. Does this represent perfect price discrimination? Why or why not?
What will be an ideal response?
a. If a firm uses an optimal two-part tariff, the outcome is economically efficient because price equals marginal cost at the level of output supplied.
b. With an optimal two-part tariff, all consumer surplus is transformed into profit.
c. With an optimal two-part tariff, the quantity supplied increases and there is no consumer surplus, so this represents perfect price discrimination.
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Which of the following is true?
i. In an unregulated market with an external benefit, consumers don't take it into account and consume less than the efficient quantity. ii. Marginal social cost equals marginal private cost minus marginal external cost. iii. An unregulated market produces more than the efficient quantity of a good with an external cost. A) Only i B) Only ii C) Only iii D) i and ii E) i and iii
Competition forces firms to produce and sell products as long as the ________ to consumers exceeds the ________ of production
A) marginal benefit; marginal cost B) marginal benefit; marginal benefit C) marginal cost; marginal cost D) marginal cost; marginal benefit