The use of a two- part price in a regulated natural monopoly
A) allows the firm to maximise profits.
B) may make it possible for the firm to obey a marginal cost pricing rule and not go out of business.
C) maximises the deadweight loss.
D) All of the above answers are correct.

Question

Quizplus · Accepted Answer

The use of a two-part pricing system in a regulated natural monopoly allows the firm to charge a fixed fee plus a per-unit price. This approach can enable the firm to cover its fixed costs through the fixed fee while setting the per-unit price equal to the marginal cost, thus adhering to the marginal cost pricing rule without going out of business. This method helps in achieving efficiency without compromising the firm's financial viability.

The Use of a Two- Part Price in a Regulated