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Author Question: Assume a firm is able to use an optimal two-part tariff. a. Is the outcome economically efficient? ... (Read 89 times)

panfilo

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on: Jun 29, 2018
Assume a firm is able to use an optimal two-part tariff.
  a. Is the outcome economically efficient? Why or why not?
  b. What happens to consumer surplus?
  c. Does this represent perfect price discrimination? Why or why not?
 
  What will be an ideal response?

Question 2

The more excess reserves banks choose to keep
 
  A) the lower the required reserve ratio. B) the smaller the deposit multiplier.
  C) the larger the deposit multiplier. D) the higher the required reserve ratio.
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Gabe

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Reply #1 on: Jun 29, 2018
Answer to Question 1

a. If a firm uses an optimal two-part tariff, the outcome is economically efficient because price equals marginal cost at the level of output supplied.
b. With an optimal two-part tariff, all consumer surplus is transformed into profit.
c. With an optimal two-part tariff, the quantity supplied increases and there is no consumer surplus, so this represents perfect price discrimination.

Answer to Question 2

B


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