The economic efficiency of a natural monopoly can be improved with the use of two-part tariffs because it allows the monopoly to
A)charge users according to their willingness to pay.
B)charge residential users different rates than business users.
C)charge users according to their ability to pay.
D)charge users separately for fixed and variable costs.
E)lower its total costs.

Question

Quizplus · Accepted Answer

Two-part tariffs allow natural monopolies to charge users separately for fixed and variable costs. This improves economic efficiency by ensuring that fixed costs are covered and variable costs are allocated according to usage. By doing so, the company can avoid losses and operate at a lower average cost. It does not necessarily relate to charging users according to their willingness to pay, ability to pay, or charging different rates for different user groups.

The Economic Efficiency of a Natural Monopoly Can Be Improved