A firm setting a two-part tariff with only one customer should set the entry fee equal to:
A) marginal cost.
B) consumer surplus.
C) marginal revenue.
D) price.

Question

Quizplus · Accepted Answer

When setting a two-part tariff with only one customer, the firm should set the entry fee equal to the customer's willingness to pay for the product, which is represented by their consumer surplus. This ensures that the customer is paying the maximum amount they are willing to pay for the product without reducing their demand for the product. The usage fee should be set equal to the marginal cost of producing the product to maximize profit. Therefore, the correct answer is B, set the entry fee equal to consumer surplus.

A Firm Setting a Two-Part Tariff with Only One Customer