In peak- load pricing, the capacity decision is determined by setting______ marginal revenue equal to long- run _______ cost.
A)off- peak; marginal
B)peak; marginal
C)off- peak; average fixed
D)peak; average fixed

Question

Quizplus · Accepted Answer

In peak-load pricing, the capacity should be determined based on the peak demand. Therefore, the decision should be made when the marginal revenue is equal to the long-run marginal cost. This means that the firm is earning the highest profit at the peak period. Option A and C are incorrect because they mention off-peak pricing, which is not relevant to the question. Option D is incorrect because it mentions average fixed cost, which is not relevant to determining capacity in peak-load pricing.

In Peak- Load Pricing, the Capacity Decision Is Determined by Setting______