A Firm Using a Two-Part Tariff Can Produce the Economically

question 78

Multiple Choice

A firm using a two-part tariff can produce the economically efficient outcome by

• A)making the fixed-fee portion of the price as low as possible.
• B)setting the per-unit portion of the price equal to the marginal cost of production.
• C)setting the per-unit portion of the price equal to the average cost of production.
• D)setting the fixed-fee portion of the price at some proportion to the fixed cost of production.

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Definitions:

Marginal Tax Rate

The rate at which the last dollar of income is taxed, reflecting the percentage of additional income that is paid in taxes.

Average Tax Rate

The ratio of the total amount of taxes paid to the total income, showing the share of income that goes to taxes.

Income Tax System

The framework by which governments collect a percentage of income from individuals and businesses as tax, which varies according to earnings levels.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, representing the percentage of additional income that is paid in tax.