Revenues when a firm engages in peak-load pricing based on the figure below will be: A) (P₁ × Q₁) + (P₄ × Q₃). B) (P₃ × Q₁) + (P₄ × Q₃). C) (P₁ × Q₂) + (P₂ × Q₃). D) (P₄ × Q₃).

Question

Quizplus · Accepted Answer

Peak-load pricing involves charging different prices for the same product during different periods of time in order to maximize profits during high demand periods. In this figure, the firm is charging a higher price (P₃) during the peak demand period (Q₁) and a lower price (P₄) during the off-peak period (Q₃). Therefore, the revenue generated from peak-load pricing would be the sum of the revenue generated during peak demand period (P₃ × Q₁) and the revenue generated during off-peak period (P₄ × Q₃), which is option B.

Revenues When a Firm Engages in Peak-Load Pricing Based on the Figure