A Firm Has Two Customers with Non-Identical Demands and a Constant

question 25

Multiple Choice

A firm has two customers with non-identical demands and a constant marginal cost of production. At any positive price, the consumer surplus values for the two customers are related as CS₂ ≥ CS₁ . What can we say about the optimal two-part tariff for the firm?

• A) The firm sets the price equal to MC and the optimal tariff is equal to CS₂.
• B) The firm sets the price equal to MC and the optimal tariff is equal to CS₁.
• C) The firm sets the price equal to MC and the optimal tariff is equal to zero.
• D) The optimal price is greater than MC and the optimal tariff is equal to CS₁.

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Definitions:

Government Regulation

The act of controlling business behavior through rules or laws, enacted to protect public interest.

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