12.12. Consider a market with 100 identical individuals, each with the demand schedule for electricity of P = 10 Q. They are served by an electric utility that operates with a fixed cost 1,200 and a constant marginal cost of 2. A regulator would like to introduce a two-part tariff, where S is a fixed subscription charge and m is a usage charge per unit of electricity consumed. How should the regulator set S and m to maximize the sum of consumer and producer surplus while allowing the firm to earn exactly zero economic profit?

12.12. Consider a market with 100 identical individuals, each with the demand schedule for electricity of P = 10 Q. They are served by an electric utility that operates with a fixed cost 1,200 and a constant marginal cost of 2. A regulator would like to introduce a two-part tariff, where S is a fixed subscription charge and m is a usage charge per unit of electricity consumed. How should the regulator set S and m to maximize the sum of consumer and producer surplus while allowing the firm to earn exactly zero economic profit?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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