A Firm Using a Two-Part Tariff Faces a Tradeoff Because

question 79

Multiple Choice

A firm using a two-part tariff faces a tradeoff because

• A)the only way to increase the fixed-fee portion of the price is to lower the per-unit portion of the price.
• B)the only way to increase total revenue is to lower per-unit profit.
• C)any increase in consumer surplus must be offset by a decrease in producer surplus.
• D)the smaller the variation between the parts of the price, the greater the deadweight loss generated by the pricing scheme.

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Definitions:

Incremental Cost Approach

A decision-making process focusing on the additional costs and benefits associated with a particular business decision.

Incremental Cost Approach

The method of analyzing the financial information needed for decision making by considering only the costs and benefits that change due to the decision.

Discount Rate

The interest rate used to discount future cash flows back to their present value.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.