Peak-Load Pricing Is When a Firm Charges a Different Price

question 64

Multiple Choice

Peak-load pricing is when a firm charges a different price during the peak (e.g.,highest demand) period than during off-peak times,because the marginal cost of providing the good or service during the peak is higher.For example,an electricity producer builds generating capacity to serve peak-period demand but only needs to call on this full capacity during a handful of days of the year.Building capacity to meet peak demand means that there is a discrete change in the marginal cost of providing the good or service across a binding capacity constraint.Is this an example of price discrimination? If so,to which degree? If not,explain why not.

• A) Yes; first-degree price discrimination
• B) Yes; second-degree price discrimination
• C) Yes; third-degree price discrimination
• D) No; because the good or service is not the same (it has different marginal costs in peak versus nonpeak periods)