Which of the following statements about setting optimal two-part tariffs for many consumers is NOT true?
A) The number of buyers (entrants) declines as the entrance fee (tariff) increases.
B) The profit from the entrance fee (tariff) is a concave function of the tariff because it first increases and then decreases as the tariff increases.
C) The profit from the entrance fee (tariff) is a convex function of the tariff because if first declines and then increases as the tariff increases.
D) The total profits is composed of the profit from the entrance fee (tariff) and from the profit from sales to buyers.

Question

Quizplus · Accepted Answer

The profit from the entrance fee (tariff) is actually a concave function of the tariff, not a convex function as stated in option C. As the fee increases, the number of buyers (entrants) declines, leading to a decrease in profit. This means that at a certain point, increasing the fee will no longer generate additional profit and may actually lead to a decrease in total profit. The total profit is composed of the profit from the entrance fee (tariff) and from the profit from sales to buyers.

Which of the Following Statements About Setting Optimal Two-Part Tariffs